Small distillers have been battling a variety of headwinds—higher materials costs, higher transit costs, lower consumption levels, demographic shifts, tariffs, and other factors. For some, however, there may be a small ray of sunshine peeking through the clouds.
U.S. Reps. Jeff Hurd and Jill Tokuda—a Colorado Republican and Hawaii Democrat, respectively—have introduced a measure to offer tax relief for distillers who tap into domestic agricultural ingredients.
The American Craft Spirits Association (ACSA) supports the measure, House Resolution 9407, titled the Supporting Producers Through Incentives from Rural Ingredients and Tax Relief (SPIRIT) Act. As currently written, the legislation would effectively reduce the federal excise tax burden for distillers who produce fewer than 100,000 proof gallons per year and source at least 90 percent of their agricultural inputs domestically. For those who qualify, it would reduce the rate from $2.70 per proof gallon to 35 cents per gallon.
Hurd, who cochairs the Congressional Craft Spirits Caucus, represents a large portion of rural, agricultural Colorado. He notes the profound ties between the embattled craft spirits segment and agricultural communities.
“Craft distillers are deeply connected to American agriculture and rural communities,” he says in the news release. “This bipartisan legislation helps ensure small producers can continue investing in local farmers, creating jobs, and contributing to Colorado’s and America’s manufacturing economy. The SPIRIT Act provides targeted relief while strengthening domestic supply chains.”
The proposed legislation offers relief to a distilling industry that has seen declines in recent years, including a decrease in the number of U.S. craft distilleries, according to the Craft Spirits Data Project.
“Craft-spirits producers are among the most agriculture-dependent businesses in beverage alcohol,” says ACSA CEO Emily Pennington. “Every bottle represents a significant investment in American grain, specialty crops, manufacturing, tourism, and local jobs. The SPIRIT Act recognizes that connection and provides meaningful relief to small distillers during a period of economic uncertainty and rising production costs.”
David Fishering, cofounder of Storm King Distilling in Montrose, Colorado, and a constituent in Hurd’s district, says that alongside the decreases in alcohol consumption, he sees a trading down when people do spend. Rather than an $85 bottle of whiskey, it’s a $50, or $40, or $35 bottle “from one of the big guys selling it as a commodity,” which he simply can’t compete with.
“This would go a long way to help that,” he says. “At this point, anything to help reduce costs. Tariffs screwed everybody in the last year and continue to do so. The drinking-culture changes are hurting all of us. Commercial property tax continues to be a real nightmare, and so we’re all getting hammered by that. It is really, really hard to be doing this right now in Colorado—pretty much anywhere, I think—and it’s getting increasingly harder to do it the way we’re doing it, being a small, bootstrapped business.”
Storm King doesn’t produce close to the 100,000-gallon cap, he says. Seeing the proposed reduction in the excise tax rate would have tangible impacts for Fishering’s distillery and many others.
It “translates to either being able to pay employees more or buy more product to make more products,” he says, “or maybe, eventually, make money at this whole operation.” He notes that the potential savings would be nearly a quarter-million dollars for a distillery at the threshold’s upper limit.
“We don't make a ton, so for us it’s not like tens of thousands of dollars, but it might be for some of the larger craft distilleries out there,” Fishering says. “That would be insane to have $235,000 back, whether it’s back into production or whether it’s being able to have better pricing.”
The push for the tax cut coincides with ACSA’s annual legislative fly-in, where a couple dozen association members spend time with their legislators at the Capitol talking about the industry’s needs.
“This is going to be the main agenda item for this year’s fly-in into D.C.,” Fishering says. “We’ll be knocking on people’s doors. I expect we’ll probably see Representative Hurd, hopefully run into him at some point. It’ll be interesting. Theoretically, this is something that should be pretty bipartisan. There shouldn’t be a lot of politicking around supporting American inputs being purchased to make an all-American product that both houses of Congress appreciate.”
Fishering says it would be interesting to see how small distillers respond to the legislation if it’s enacted. While corn and, to a lesser degree, wheat are more widely grown in the United States than Canada, rye and malting barley are often imported from north of the border. Meanwhile, there is a small sugar-cane industry in the southern United States, but most rum producers rely on larger nondomestic suppliers. Fishering says he depends on an American company that brings in product from Colombia—but the legislation could encourage enough demand for sugar-cane growers in places such as Florida and Louisiana to invest and grow their companies.
“There's definitely alternatives,” he says, “and if you have a bunch of distilleries all of a sudden turning to you to supply them, that could be a really good thing for those guys.”
This isn’t the association’s first foray into pushing for tax cuts. ACSA, the Distilled Spirits Council of the United States (DISCUS), and others pushed for an excise tax reduction for small distillers that was passed on a temporary basis in 2017, creating parity among distillers, brewers, and vintners. That legislation lowered the excise tax rate from $13.50 to $2.70 per proof gallon for a distillery’s first 100,000 proof gallons produced.
With that legislation poised to expire in 2019, advocates successfully lobbied to have those rates made permanent via the Craft Beverage Modernization and Tax Reform Act. The new proposal is based on a 2022 Michigan law that reduced the state markup for spirits using agricultural inputs from in-state.