Beer tax leaves bitter aftertaste

Commentary — By on February 26, 2013 at 9:19 am

Beacon CEO Justin Owen and the Tennessee Tax Revolt’s Ben Cunningham pen an article in today’s Tennessean supporting reform of the state’s beer tax. An unedited version of the article is posted below.

by Justin Owen & Ben Cunningham

India Pale Ale. Stout. Amber Ale. These are terms most Tennesseans likely never heard of until a few years ago, when the microbrewery wave spread across the nation. Today, there are 19 breweries right here in Tennessee, with budding entrepreneurs brewing up new batches of beer every day.

Even if you don’t drink alcoholic beverages, raise a glass of whatever you’re drinking to these small business owners. Their growth is good news for Tennessee. More microbreweries means more jobs, and jobs make for a stronger economy. But there is one problem that threatens to cause this booming business to lose its fizz.

Few are aware that Tennessee, a historically low-tax state, has the highest beer tax in the nation. And despite the fact that beer sales steadily declined by five percent from 1999 to 2010, tax collections increased by 32 percent.

The reason for this contradiction is that unlike every other state in the nation save Kentucky, Tennessee’s beer tax is calculated based on the cost to produce and sell the suds. Most states tax beer based on volume, or the amount of beer a brewer sells. So in effect, every gallon of beer produced gets slapped with a tax ranging from two cents to $1.07.

Because Tennessee taxes beer based on price rather than by volume, tax revenues will continue to climb as the cost to produce beer increases, even if brewers produce the same—or less—quantity

Take Linus Hall of Yazoo Brewing Company in Nashville, for example. Linus has built Yazoo into one of the state’s most appreciated brews. As his costs to buy barley, glass bottles, and other materials go up, so too does the tax Linus pays to government. Even if he scales back his operations and produces less beer, he could still wind up paying more in taxes.

This strange bit of Tennessee tax policy is screaming for reform. Tennessee small business owners should not be saddled with such a punitive tax approach, whether they are beer brewers or manufacturers.

Government should encourage job growth, not choke it down. Tennessee’s tax equals roughly $37 per barrel of beer, compared to North Carolina’s tax at $19 per barrel, Kentucky’s at $24, and Virginia’s at less than $9. It’s no wonder that many import and craft brewers literally drive right through Tennessee to sell their product in nearby states, and that Tennessee beer makers are moving to North Carolina and Virginia to build their businesses.

Fortunately, there is a move afoot that is worthy of a toast. State Sen. Brian Kelsey and Rep. Cameron Sexton have filed the Beer Tax Reform Act of 2013. The bill merely changes the way Tennessee’s beer tax is calculated to reflect the practice in other states. The bill will ensure that Tennessee’s low-tax mantra lives up to the hype.

Beer drinkers aren’t the only ones who should celebrate this good news. Anyone interested in looking out for small businesses—from the neighborhood pub to the mom and pop grocery store—should welcome this change. In fact, all taxpayers should applaud the return of more money to the wallets of those like Linus Hall who create jobs and grow our economy.

Justin Owen is the president & CEO of the Beacon Center of Tennessee, the state’s free market think tank. Ben Cunningham is the spokesman for Tennessee Tax Revolt, an organization committed to lower taxes.

 

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