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Craft Breweries Fight to Change Outdated Laws

Proposed bills could help small brewers, locally and nationally

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Update: The Idaho Senate voted unanimously to pass Senate Bill 1058 Feb. 26. The bill will now move to the House State Affairs Committee for consideration.

When craft beer brewers and supporters gather in Washington, D.C. next month, Payette Brewing Company's Sheila Francis will be Idaho's sole representative. But she'll be far from alone. Joining more than 230 Brewers Association members from 215 breweries in 46 states, Francis will climb the Hill on Monday, March 25, in support of the Small Brewer Reinvestment and Expanding Workforce Act, or the Small BREW Act. The mission is simple: lobby for legislation that could change the way small breweries are taxed.

"We've contacted everybody's senators' and representatives' offices to arrange for meetings to start the conversation about what the bill is and tell our stories about who we are as small brewers in different states," Francis said.

As Payette Brewing's director of marketing and events--and the president and founder of Idaho Brewers United--Francis will meet with lawmakers about all of the Gem State's craft and microbrew interests.

Most important, though, is garnering support for the Small BREW Act, which would reduce federal excise taxes on beer brewed at small craft breweries by half--from $7 to $3.50--on the first 60,000 barrels produced. What's more, the measure would lower the current $18 rate to $16 per barrel on production between 60,000 and 2 million barrels. Only breweries producing fewer than 6 million barrels annually would qualify for these lowered rates.

For Francis, and other Small BREW Act supporters, it's high time those rates were brought down--excise taxes on beer were implemented during the Civil War and haven't been revised since 1976.

"When the beer tax was enacted, it was essentially a luxury tax," she said. "It was grouped in with a lot of taxes that were for large-ticket items that only the super-rich could afford, but beer is not a rich person's drink. It's an everyperson's drink. The tax is kind of antiquated in that sense."

Craft beer sales amount to just less than 6 percent of the nation's beer sales by volume, but lowering excise taxes for small breweries could help change that. Francis thinks lowering the rates will allow small brewers to better compete in a market that is dominated by large producers.

"I don't want to say it's about leveling the playing field, but we're just getting the opportunity to have our businesses grow, and when there's a lot of tax involved, it's really hard to do that," she said. "It creates a friendly business environment for the smaller guys."

According to the Craft Brewers Association, small breweries provide more than 100,000 jobs in the United States. And while overall beer sales in the United States were down 1.3 percent by volume in 2011, sales of craft beers increased by about 1 percent--nearly 1 million barrels. The craft beer industry is especially booming in Idaho; the Treasure Valley alone now boasts nine craft breweries.

"In spite of having a significant tax burden put on us, brewers have kind of overcome that," Francis said. "We're still growing and reinvesting, even though it's a burden to pay those taxes and still produce as we are. Essentially, a new brewery opened up every day last year somewhere in the country, which is incredible growth."

The Small BREW Act was introduced in the 2011 Congress and gained the support of 174 U.S. representatives before it died in committee. A Senate measure was also introduced in 2011 that contained identical tax recalibration provisions and was co-sponsored by Republican Idaho Sen. Mike Crapo. This year's reintroduced Small BREW Act is identical to the previous version and has bipartisan co-sponsor support. While no similar bill has been reintroduced in the Senate this year, Crapo's office confirmed that the measure would still have his full support (despite the Mormon lawmaker's recent DUI).

"He's always been a big supporter because of the effect on small business and the effect on agriculture," said Lindsay Nothern, Crapo's Idaho press secretary. "It's a great thing for Idaho."

Idaho is also revising its own legislation to better allow craft breweries to thrive in the Gem State.

During the 2012 legislative session, Fred Colby, co-founder and co-owner of Laughing Dog Brewing Company, lobbied the Legislature to change a law that limited his ability to work with other breweries around the state. Colby, whose brewery is located in the small town of Ponderay, in north Idaho, wanted to invest in a Post Falls brewery but it was against the law to have separate wholesale and retail licenses on different breweries. With the help of a handful of Idaho legislators, Colby revised the law. It now allows Idaho microbrewers an interest in up to two breweries.

And the current legislative session is taking further steps to help out the state's microbrewers. Many craft brewers operate in small quantities, like one-sixth kegs, which contain about 40 pints of beer. But small kegs, long sold by Treasure Valley distributors, are actually illegal in Idaho. This outdated law prompted Twin Falls Republican Sen. Jim Patrick to sponsor a measure to revise the law, allowing small kegs to be legally sold in Idaho.

"The practice has been to sell the stuff at five gallons, but since it was found to be illegal, we're trying to tweak the law," Patrick said. "This is for tasty beer. It's not a volume thing. It's not for alcohol; it's for the flavors."

Patrick's Senate Bill 1058 received a unanimous vote to move from the Senate State Affairs Committee to the Senate floor Feb. 21. Sen. Patrick sees no reason he won't be able to get the bill passed this session.

Francis has been cutting her legislative teeth lobbying on behalf of Senate Bill 1058, but she's eager for her trip to Washington to lobby for a national initiative that will benefit craft breweries like Payette. It won't be easy, though.

According to Francis, proponents of the Small BREW Act will face their biggest challenge in convincing Congress to enact a tax cut during a time of such fiscal uncertainty.

"It is a tax cut, so that's always an issue," Francis said. "Where's the money going to go that we were paying, since that source of revenue will be cut in half? We are a growing industry that's thriving, so there may be some that question as to why we'd need lower taxes for an industry that's doing really, really well across the country."

But Francis is optimistic Congress will recognize that craft breweries have become an integral and celebrated part of the national beer industry, deserving of legislation that promotes further growth.

"I think what's really cool is craft brewers are being viewed a little bit differently and gaining a lot of recognition as important parts of the industry," she said. "We're still on a really small scale. There is still a far more significant influence from the really large producers. A lot of breweries have great stories behind them and they're really relatable and personable, so they're like a mom and pop store you can find, [they] just have a different kind of product."

Like mom and pop stores, though, they need all the help they can get.

"Paying a little less in taxes means more opportunity to reinvest those extra funds into brewing and building our own breweries and getting our products out there," Francis said. "If you're paying less in taxes, I guess you'd say we're more inclined--and there's better opportunity--to invest in ourselves and our businesses."

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