It’s a critical moment for spirits producers as federal legislators are poised to make decisions that will directly impact distillers’ ability to continue to grow and thrive. But the spirits community demonstrated today that it is committed to fighting for its future as 200 distillers, industry suppliers and allies from nearly 40 states including the District of Columbia scaled Capitol Hill in an effort to prevent the current federal excise tax (FET) cut from expiring and seek an end to trade tariffs that have been hindering producers’ ability to grow their export business.
“We are here because there is a certain power when you come together to make your voices heard,” Margie A.S. Lehrman, CEO of the American Craft SpiritsAssociation (ACSA) told attendees at the start of ACSA’s and Distilled SpiritsCouncil’s (DISCUS) Public Policy Conference.
The top objective of the conference is achieving permanence or an extension of the FET reduction passed as part of the Craft Beverage Modernization and Tax Reform Act (CBMTRA) at the end of 2017. The CBMTRA’s passage reduced the tax per gallon to $2.70 from $13.50 on the first 100,000 proof gallons.
The tax cut is set to expire on December 31, 2019 if Congress takes no other action. The savings from the reduction has enabled small spirits producers to hire more employees, buy new equipment, fund expansions and generally re-invest in and grow their businesses.
“You’re all really part of the heart and soul of the industry,” said DISCUS president and CEO Chris Swonger. “What does the [CBMTRA] mean? It means driving economic vitality in your communities, it’s about investment, it’s about job growth.”
The Senate version of the new FET reduction bill, S.362, sponsored once again by Sen. Ron Wyden (D-OR) and Sen. Roy Blunt (R-MO), currently has 66 co-sponsors. The House bill, HR 1175, sponsored by Rep. Ron Kind (D-WI) and Rep. Mike Kelly (R-PA), has 256 co-sponsors. The 2017 version had more than 300 co-sponsors—a number that ACSA and DISCUS hope to exceed.
“When I first came on board in 2015 and we talked about this excise tax cut, it wasn’t something that was even a reality at that point,” Lehrman recalled. “But we kept fighting because people believed we could make a difference. And we all know it’s going to expire at the end of 2019 unless we make a difference.”
Craft distiller attendees were heartened to hear from a number of the federal legislators who are helping them make that difference.
“I want you to be able to enjoy the intent of what my original law was—that being permanent,” Sen. Wyden told the group.
The temporary nature of the law that did pass in 2017 created a lot of uncertainty, Wyden said.
“[Legislators] slapped an expiration date on it and that has meant all of you don’t have the certainty and predictability you need and the whole point of the law I wrote was to take you off all of those rollercoasters.”
Wyden said the key to the law’s future is building a coalition among stakeholders who can find common ground “and keep pushing.”
“Political change is rarely top-down, it’s bottom-up, so there are, like, 34 people who need small businesses from their state to come to meet with them,” Wyden advised. “And you don’t call them names, [you say] ‘we came to show you what the economic ripples are going to be if you sign on to be a part of it.’”
Senator Rob Portman [R-OH] was instrumental in getting the 2017 version included with that year’s Tax Cut and Jobs Act at the eleventh hour and he reaffirmed his support at today’s Conference.
“Just keep expressing the urgency of it, the impact if it doesn’t get extended,” Portman told attendees. “Encourage members [of Congress] not to kick the can down the road. Let’s get it done now.”
The advocacy effort, Portman added, does not end when small distillers leave Washington. Every producer, he said, should be in touch with their Senators and Representatives and should invite the legislators to their distilleries.
“The truth of the matter is, if we’re going to be able to see the craft spirits business grow and continue to employ people and do everything you guys do to make the world a better place—and I mean that—we need to fight to get this bill passed,” said Sen. Jon Tester (D-MT). “Going out and talking to your reps is very important and making sure you get a commitment from them on this issue is really important.
CBMTRA has been about more than a tax cut, as it also represents the first time craft spirits have achieved some level of parity with wine and beer on the federal tax level. If the FET reduction is allowed to expire, that parity goes away and small distillers go back to paying exactly what large producers pay. Craft breweries and small wineries would return to their previously tiered tax structure, where those producers already were paying a lower rate than their much larger beer and wine-making counterparts. That’s a key point that craft spirits producers addressed with federal lawmakers today.
“It’s helpful to remind people that the spirits industry had no reduced rate for small producers until 2017, whereas beer got something in the ‘70s and wine got a tax credit in the ‘90s,” said ACSA Public Policy Adviser Jim Hyland of the Pennsylvania Avenue Group. “We use the term parity, and that’s seemed to have resonated with a lot of folks…What we say is we just want parity with beer and wine, a permanent, lower rate for craft spirits producers.”
Last month a bill emerged from the House Ways and Means Committee that proposed a one-year-extension on the FET cut.
While the FET dominated distillers’ talking points on Capitol Hill today, there were a number of other key federal issues on the agenda.
International Trade
The international trade war sparked by President Trump’s tariffs on imported goods last year has had a considerable impact on America’s craft spirits producers. Exporting distillers have had to dramatically revise their projections for sales overseas, while others have had to pull back on exporting all together.
“We urge the U.S. and the European Union to de-escalate their trade disputes, resolve the retaliatory tariffs that are placed on U.S. whiskey exports and refrain from placing more tariffs on spirits,” said Robert Maron, VP of international trade for DISCUS, told Public Policy Conference attendees. “The best story for the Hill is really that personal experience. The more you can highlight the impact on your company and on your community, this is the time to do it.”
Direct-to-Consumer Sales
Last month the U.S. Supreme Court struck down the Tennessee law requiring alcohol retailers to have lived in the state for a minimum of two years before they apply for a license in Tennessee, citing, as the Court did in the 2005 Granholm vs. Heald ruling, the Constitution’s dormant Commerce Clause.
The Court held, as it did in that earlier ruling, that any law that discriminates against interstate commerce in favor of intrastate commerce is unconstitutional. The Tennessee decision could serve as a precedent for future legislations related to direct-to-consumer shipping. However, the caveat is that such laws historically have benefitted wine and there’s a lot more uncertainty around spirits.
“The reality is there is no quick or guaranteed solution,” Suzanne DeGalan, partner at the law firm Hinman & Carmichael told Conference attendees. “Wine industry groups have spent years lobbying for direct-to-consumer…The craft distillery movement is still a new movement, relatively speaking, so you don’t have states with robust intrastate laws that allow them to challenge for interstate.”
TTB Update
Small spirits producers in attendance also were able to get some face time with representatives of the Federal regulatory agency with which they deal the most, the Alcohol and Tobacco Tax and Trade Bureau (TTB). TTB representatives said they hoped to enhance communications between their agency and craft distillers.
“Operational success is directly intertwined with our effective communication with you,” said TTB’s Acting Administrator Mary Ryan, who took over for Administrator John Manfreda after his untimely passing in May. “We want to help you comply. Our biggest wish list [item] is that we want you to comply. It makes us a more effective regulator.”
Ryan also noted that despite the fact that the craft spirits market has grown substantially, TTB has remained the same size.
“We’re a very small organization proportionate to our responsibilities,” Ryan said. “We’re streamlined and very agile and as responsive as we can be, given our small size…Candor, transparency—it’s the cornerstone of our ability to regulate effectively.
• Cannabis
Legalized cannabis has been on a lot of industries’ minds lately, especially those involved with beverage alcohol. However, if recent DISCUS research is any indication, the spirits industry doesn’t have much cause for concern, at least not at the moment. David Ozgo, DISCUS’s chief economist, presented research showing spirits consumption trends relative to cannabis in areas where the latter is legal. “There is no pattern of declining beverage alcohol consumption in states that have legalized recreational cannabis,” Ozgo reported. “Mature cannabis markets show no alcohol impact.”
The Public Policy Conference kicked off Monday evening at a South Seas-inspired reception—complete with leis and rum-forward tropical drinks—at Tiki TNT & Potomac Distilling, one of the newest additions to Washington, D.C.’s booming craft spirits scene, overlooking its namesake river on the District’s revitalized Wharf dining and entertainment promenade. The Conference will conclude tomorrow after a second full day of meeting with members of Congress.
