One of the more unique aspects of the beverage alcohol industry in America is the way that it allows smaller breweries and distilleries to thrive. That is why the United States has an unusually diverse market when it comes to small producers of craft beverages, despite the looming presence of giants like Molson Coors and Anheuser-Busch. This is great for American consumers, as it gives them plenty of choices and new drinks to try. It also makes it easier for new craft beverage companies to enter the market and add their own unique products to the shelves.
The Craft Beverage Modernization and Tax Reform Act has been a major factor that helped to allow this diverse array of companies and products to exist. Despite its helpful influence on the beverage market, the CBMTA has had multiple close calls in which it was nearly allowed to expire. The most recent of these came at the end of the calendar year, with the president permanently signing it into law on December 27th, which was only a few days before it would have run out. With that, the ominous shadow that had been lingering over the craft beverage industry has once again retreated.
What is the CBMTA?
The Craft Beverage Modernization and Tax Reform Act was first signed into law back in 2017, as a part of the major tax reform bill that was enacted in that year. The act created a tremendous reduction in the federal excise tax that companies have to pay on the first 100,000 gallons of alcoholic product they produce. Prior to the enactment of the CBMTA, federal excise tax on beverage alcohol was a whopping $13.50 per proof gallon. This made it significantly more challenging for smaller companies to afford to stay in business. But under the CBMTA, that tax rate is slashed down to a mere $2.70 on those first 100,000 gallons.
Initially, the act was supposed to stay in place for only two years, so that its effects on the economy would have time to be properly evaluated. The change proved to be wildly popular, and was of great benefit to small breweries, distilleries, and vineyards. Because of this, it was renewed for another year at the end of 2019, shortly before it was due to expire. With only days left before it was due to expire again, the act has once again been revived, this time with no planned date of expiration.
What makes the CBMTA important?
While 100,000 gallons may sound like an incredible amount, for some major companies it represents just a small portion of their overall annual production. But to small breweries, vineyards, and distilleries, 100,000 gallons could amount to most, if not all, of what they regularly make in a year. This enables those small companies to remain competitive even against massive international corporations.
The startup costs of opening up a new beverage company can be astronomical, especially with all of the equipment and licenses that need to be purchased. The higher excise tax rate makes this initial barrier for new companies to enter the market much more challenging.
The stakes were especially high at present time due to the ongoing COVID-19 pandemic, which has already put a financial strain on businesses. That, along with the excise tax returning to its original $13.50 rate would have most likely been a death blow to many small wine and spirits companies, adding them to the already long list of businesses that didn’t survive the pandemic.
The renewal of the CBMTA is excellent news for small wineries, distilleries and breweries across America because it lowers their excise tax rates to a level where they can compete with the larger companies that dominate the market. Now that it has been renewed indefinitely, they can breathe a sigh of relief. The now permanent status of the act is especially helpful, as it encourages people to create new beverage products and go into business, without fear that the high tax rates might leave them bankrupt.