According to the Distilled Spirits Council of the United States, excise and sales taxes levied at the federal, state, and local levels account for more than one-third of the shelf price of most alcohol brands. And of all the Federal Excise Taxes funding the US government, the FET on distilled spirits is one of the highest. At about $13.50 per proof gallon (approximately $0.21 per ounce of alcohol), it’s a major cost that challenges distilleries across the country. While this FET has remained static since 1991, there have finally been some movements to have the FET reevaluated – hopefully at a lower rate.
Earlier this year, we saw Senate Amendment #3539 – a paperclip to the Federal Aviation Administration Reauthorization Act of 2016 – which proposed a reduction of the FET to only $2.70 per proof gallon. Unfortunately, support for general objectives of the bill (not necessarily the FET reduction) fizzled.
Fortunately, Senators Ron Wyden (D-OR) and Roy Blunt (R-MO) kept on fighting and introduced H.R. 2903 – the Craft Beverage Modernization and Tax Reform Act (CBMTRA), which aims to update federal tax codes to benefit craft brewers and distilleries. Although the proposed Act is still in the early stages of the legislative process, it already boasts more than 200 cosponsors.
Distilleries – and the alcohol industry as a whole – have a lot to gain from an FET reduction. Such a large tax break would encourage capital and workforce investment, remove barriers to growth in the industry, and stimulate the economy. Lower FET rates could also translate into better products. Instead of making only vodka or gin – which are cheap and easy to make – distilleries could utilize their newfound financial flexibility to float expenses while finer products age.
From what I can tell, the only downfall is a ding to the federal government’s revenue. A cut from $13.50 to $2.70 could translate into about $100 million in losses. Some may argue that the reduction is aggressive – perhaps a scaled approach could garner greater support and move through the system faster. For now, all distilleries can do is continue to contact their United States Senators and Representatives and encourage them to support CBMTRA.
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