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PROPOSAL TO REDUCE FEDERAL EXCISE TAXES FOR SMALL PRODUCERS


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As a follow up to the discussion from the DEFINING "CRAFT" DISTILLERY thread, here's a one-page position document for all of us to discuss, finalize, gather support for from fellow spirits makers and take to our federal legislators ASAP to create a new, lower federal excise tax tier for small-scale spirits maker. The structure below closely follows the TTB's existing format.

As I only had a short window to put this together, please double-check all facts and figures before we take this to broader audiences.

______________________________________________________________________

Small Spirits Makers' Equal Tax Act

Goal

Encourage the growth of hand-crafted spirits production in the U.S. by creating a reduced federal excise tax rate for small-scale distilled spirits makers, similar to the current reduced tiers for beer and wine producers.

Background

The distilled spirits industry has enjoyed a renaissance of local, artisan production of unique spirits over the last five years. Our numbers have swelled from less than 40 licensed makers in 2003 to more than 150 in 2008. Because of our efforts, U.S. and even some overseas consumers are beginning to experience innovation and quality in spirits products they can find in the marketplace that mirror what beer lovers enjoyed with the birth of micro-brewers in the 1980s-1990s and wine lovers with the emergence of the independent winemakers in the 1970s-1980s.

What made the growth of small beer and wine makers possible -- other than hard work and passion -- was a reduced federal excise tax rate that allowed them to compete with much larger producers who benefited from the economies of large-scale production. Today, small-scale beer producers pay 39% of the $18 per barrel in federal excise tax for the first 60,000 barrels they make if they produce less than 2 million barrels per year. Similarly, small producers of average-proof wine (<14% alcohol) pay 18% of the $1.07 per gallon in federal excise tax for the first 100,000 gallons they remove provided they make no more than 150,000 gallons per year.

To put this in context, small beer producers pay $0.02 vs $0.05 in federal excise tax per 12 oz can, while small wine producers pay $0.04 vs $0.21 per 750 ml bottle.

By contrast, spirits makers -- large or small -- pay the same $13.50 per proof gallon or $2.14 per 80-proof 750 ml bottle of spirits.

Proposal

Small-scale spirits producers need a similar reduced-rate federal excise tax structure to continue to innovate and compete effectively with large-scale producers. We the undersigned producers propose the following structure to bring balance to small distilled spirits producers that mirrors the excise rates of small beer and wine producers: Tier one/regular -- 100% rate, Tier two/small-scale -- 20% rate.

Proposed Distilled Spirits Excise Tax Rates

Distilled Spirits.............Proof Gallons*.............750ml Bottle

Regular Rate................$13.50.......................$2.14 (at 80 proof)

Reduced Rate**............$2.70.........................$0.43 (at 80 proof)

* A proof gallon is a gallon of liquid that is 100 proof, or 50% alcohol. The tax is adjusted, depending on the percentage of alcohol of the product.

** Reduced Rate -- For the first 60,000 gallons of spirits if producers make no more than 100,000 gallons per year.

Producers who support this legislation

1. Modern Spirits LLC 168 W Pomona Ave, Monrovia, CA 91016

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Dry Fly Distilling, Spokane, Washington, also fully supports this effort. Discussions with our legislators have already started. This document will add significant fuel to the fire.

Thank You Melkon for all of your hard work.

Don Poffenroth

Kent Fleischmann

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A very good synopsis of the issue, Melkon, and I offer our unbridled support!

I took a cue from you, and added to your list at the bottom, in petition form, with the details of my two distilleries. I suggest that all other supporters who wish to add their company names and addresses to this draft "petition" should do so accordingly.

All the very best,

Berle W "Rusty" Figgins, Jr

The Ellensburg Distillery and Dynamic Alambic Artisan Distillers

As a follow up to the discussion from the DEFINING "CRAFT" DISTILLERY thread, here's a one-page position document for all of us to discuss, finalize, gather support for from fellow spirits makers and take to our federal legislators ASAP to create a new, lower federal excise tax tier for small-scale spirits maker. The structure below closely follows the TTB's existing format.

As I only had a short window to put this together, please double-check all facts and figures before we take this to broader audiences.

______________________________________________________________________

Small Spirits Makers' Equal Tax Act

Goal

Encourage the growth of hand-crafted spirits production in the U.S. by creating a reduced federal excise tax rate for small-scale distilled spirits makers, similar to the current reduced tiers for beer and wine producers.

Background

The distilled spirits industry has enjoyed a renaissance of local, artisan production of unique spirits over the last five years. Our numbers have swelled from less than 40 licensed makers in 2003 to more than 150 in 2008. Because of our efforts, U.S. and even some overseas consumers are beginning to experience innovation and quality in spirits products they can find in the marketplace that mirror what beer lovers enjoyed with the birth of micro-brewers in the 1980s-1990s and wine lovers with the emergence of the independent winemakers in the 1970s-1980s.

What made the growth of small beer and wine makers possible -- other than hard work and passion -- was a reduced federal excise tax rate that allowed them to compete with much larger producers who benefited from the economies of large-scale production. Today, small-scale beer producers pay 39% of the $18 per barrel in federal excise tax for the first 60,000 barrels they make if they produce less than 2 million barrels per year. Similarly, small producers of average-proof wine (<14% alcohol) pay 18% of the $1.07 per gallon in federal excise tax for the first 100,000 gallons they remove provided they make no more than 150,000 gallons per year.

To put this in context, small beer producers pay $0.02 vs $0.05 in federal excise tax per 12 oz can, while small wine producers pay $0.04 vs $0.21 per 750 ml bottle.

By contrast, spirits makers -- large or small -- pay the same $13.50 per proof gallon or $2.14 per 80-proof 750 ml bottle of spirits.

Proposal

Small-scale spirits producers need a similar reduced-rate federal excise tax structure to continue to innovate and compete effectively with large-scale producers. We the undersigned producers propose the following structure to bring balance to small distilled spirits producers that mirrors the excise rates of small beer and wine producers: Tier one/regular -- 100% rate, Tier two/small-scale -- 20% rate.

Proposed Distilled Spirits Excise Tax Rates

Distilled Spirits.............Proof Gallons*.............750ml Bottle

Regular Rate................$13.50.......................$2.14 (at 80 proof)

Reduced Rate**............$2.70.........................$0.43 (at 80 proof)

* A proof gallon is a gallon of liquid that is 100 proof, or 50% alcohol. The tax is adjusted, depending on the percentage of alcohol of the product.

** Reduced Rate -- For the first 60,000 gallons of spirits if producers make no more than 100,000 gallons per year.

Producers who support this legislation

1. Modern Spirits LLC 168 W Pomona Ave, Monrovia, CA 91016

2. Ellensburg Distillery LLC 1000 N Prospect St, Ellensburg, WA 98926

3. Dynamic Alambic Artisan Distillers LLC 20140 Rd 24 SW, Mattawa, WA 99349

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Well written Melkon,

Great Lakes Distillery, LLC certainly backs this. Will this document be enough reason for legislators? Should this document explain how economies of scale give big distillers an advantage? Anyone know a brewer from the early days who may have some recollection of how they got the changes made?

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Will this document be enough reason for legislators? Should this document explain how economies of scale give big distillers an advantage? Anyone know a brewer from the early days who may have some recollection of how they got the changes made?

We may need additional information in our back pockets to persuade some legislators, but I think we're better off with a "short & sweet" upfront approach where we're simply attempting to level the playing field.

One thing that would help, though, is getting as many of our peers as possible to sign on. Please forward to as many producers that fit the profile as you know.

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I like how the proposal is laid out. I don't know how the beer tax schedule is implemented, but for wine, it's not structured as a lower rate - but as a tax credit of $0.90 per gallon. So that lowers the table wine rate from $1.07 to $0.17; carbonated wine from $3.30 to $2.40. Cider gets a lower credit so it matches the table wine rate. Naturally sparkling wine gets no credit at all. I think your bond has to be sized to cover the amount due before the credit.

Ahh, I just took a quick look - your proposal is modelled after the beer schedule. You might want an alternative proposal worded the wine way, to see if one gets more traction than the other.

One twist to the wine 'small producers credit' is that you have to be actually producing to get it. Gallons entered on the production lines of the operations report sometime that year. So say you decide to bow out of the business and just run out inventory, you can't claim the credit that year.

A similar hook to the DSP production report could target this tax relief to producers, rather than just-processors.

I think the 60,000 gal/year figure is good. Is the 100,000 gal cap for eligibility too low? I guess it's in line with the 100k/150k ratio for the wine credit. And do you mean WG or PG?

<aside> The 60kgal/year figure has been proposed in a couple of places on the Forum. IMHO, it's good to get some industry consensus around a figure and then start getting it out there. This comes from the recent experience of having the WI wholesale wine lobby pick a number from a specialty wine _retailer_ association website that was much smaller than the Federal numbers above, or even the existing definition of WI small brewer - even scaled for alcohol content. Goes back to not letting others define you. Normally I prefer a definition [of craft] based on attitude or end result. But sometimes you need a number. </aside>

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<aside> The 60kgal/year figure has been proposed in a couple of places on the Forum. IMHO, it's good to get some industry consensus around a figure and then start getting it out there. This comes from the recent experience of having the WI wholesale wine lobby pick a number from a specialty wine _retailer_ association website that was much smaller than the Federal numbers above, or even the existing definition of WI small brewer - even scaled for alcohol content. Goes back to not letting others define you. Normally I prefer a definition [of craft] based on attitude or end result. But sometimes you need a number. </aside>

Just my own take on this...60K might be fine in comparison to wine/beer. Consider the manufacture of either and the net volume of alcohol being produced. Translating that into distilled spirits (and assuming a nice round 10% wash for the sake of example). That's the equivalent of 240K gallons of a 10% ABV fermented beverage (I used that number to fit between beer and wine...and ease). In the context of spirits, 60K gallons per year might even err on the high side. So, considering those numbers and applying them to your facility, can you process 250-300K gallons of wash per year? Is that a realistic threshold for what we're looking to define as "artisan" scale?

Obviously this applies more towards those who are fermenting their own, or at least distilling the wash, not necessarily those blending, rectifying, infusing, etc.

Perhaps this might also feed back into the definition or at least terminology debate of micro/nano/craft/artisan/Billy Bob and his corn squeezin's. [1]

Paul

[1] No affront meant to anybody here whose name is Billy Bob...it's just fun to say :)

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Count in Drum Circle Distilling from Sarasota, Florida. I'll contact my legislators with this suggestion as well.

For those of you who have had success in getting state laws passed in favor of small producers - what other arguments helped? I've heard that tying in support of agriculture has been quite convincing. Tourism seems to be another potential benefit that legislators like. Should we be focusing on these benefits as well when we contact our reps?

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Grand Traverse Distillery supports the proposal. Thanks for the work, what do we need to do?

Kent Rabish

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A very good synopsis of the issue, Melkon, and I offer our unbridled support!

I took a cue from you, and added to your list at the bottom, in petition form, with the details of my two distilleries. I suggest that all other supporters who wish to add their company names and addresses to this draft "petition" should do so accordingly.

All the very best,

Berle W "Rusty" Figgins, Jr

The Ellensburg Distillery and Dynamic Alambic Artisan Distillers

As a follow up to the discussion from the DEFINING "CRAFT" DISTILLERY thread, here's a one-page position document for all of us to discuss, finalize, gather support for from fellow spirits makers and take to our federal legislators ASAP to create a new, lower federal excise tax tier for small-scale spirits maker. The structure below closely follows the TTB's existing format.

As I only had a short window to put this together, please double-check all facts and figures before we take this to broader audiences.

______________________________________________________________________

Small Spirits Makers' Equal Tax Act

Goal

Encourage the growth of hand-crafted spirits production in the U.S. by creating a reduced federal excise tax rate for small-scale distilled spirits makers, similar to the current reduced tiers for beer and wine producers.

Background

The distilled spirits industry has enjoyed a renaissance of local, artisan production of unique spirits over the last five years. Our numbers have swelled from less than 40 licensed makers in 2003 to more than 150 in 2008. Because of our efforts, U.S. and even some overseas consumers are beginning to experience innovation and quality in spirits products they can find in the marketplace that mirror what beer lovers enjoyed with the birth of micro-brewers in the 1980s-1990s and wine lovers with the emergence of the independent winemakers in the 1970s-1980s.

What made the growth of small beer and wine makers possible -- other than hard work and passion -- was a reduced federal excise tax rate that allowed them to compete with much larger producers who benefited from the economies of large-scale production. Today, small-scale beer producers pay 39% of the $18 per barrel in federal excise tax for the first 60,000 barrels they make if they produce less than 2 million barrels per year. Similarly, small producers of average-proof wine (<14% alcohol) pay 18% of the $1.07 per gallon in federal excise tax for the first 100,000 gallons they remove provided they make no more than 150,000 gallons per year.

To put this in context, small beer producers pay $0.02 vs $0.05 in federal excise tax per 12 oz can, while small wine producers pay $0.04 vs $0.21 per 750 ml bottle.

By contrast, spirits makers -- large or small -- pay the same $13.50 per proof gallon or $2.14 per 80-proof 750 ml bottle of spirits.

Proposal

Small-scale spirits producers need a similar reduced-rate federal excise tax structure to continue to innovate and compete effectively with large-scale producers. We the undersigned producers propose the following structure to bring balance to small distilled spirits producers that mirrors the excise rates of small beer and wine producers: Tier one/regular -- 100% rate, Tier two/small-scale -- 20% rate.

Proposed Distilled Spirits Excise Tax Rates

Distilled Spirits.............Proof Gallons*.............750ml Bottle

Regular Rate................$13.50.......................$2.14 (at 80 proof)

Reduced Rate**............$2.70.........................$0.43 (at 80 proof)

* A proof gallon is a gallon of liquid that is 100 proof, or 50% alcohol. The tax is adjusted, depending on the percentage of alcohol of the product.

** Reduced Rate -- For the first 60,000 gallons of spirits if producers make no more than 100,000 gallons per year.

Producers who support this legislation

1. Modern Spirits LLC 168 W Pomona Ave, Monrovia, CA 91016

2. Ellensburg Distillery LLC 1000 N Prospect St, Ellensburg, WA 98926

3. Dynamic Alambic Artisan Distillers LLC 20140 Rd 24 SW, Mattawa, WA 99349

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Thanks for everyone who's voiced support! We've got 10 so far...

1. Modern Spirits LLC 168 W Pomona Ave, Monrovia, CA

2. Colorado Gold LLC, Cedaredge, CO

3. Tuthilltown Spirits, Gardiner, NY

4. Dry Fly Distilling, Spokane, WA

5. Ellensburg Distillery LLC Ellensburg, WA

6. Dynamic Alambic Artisan Distillers LLC Mattawa, WA

7. Great Lakes Distillery LLC, Milwaukee, WI

8. Drum Circle Distilling, Sarasota, FL

9. Grand Traverse Distillery, Traverse City, MI

10. Mystic Mountain Distillery, Larkspur, CO

Next steps:

- Build list to 50 supporters -- could everyone contact 5 other makers and get them to sign on by this Friday? I'll take care of CA and IL.

- Finalize proposal

- Contact our reps (and probably make a small donation to their re-election funds)

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Add Pacific Distillery LLC, Woodinville, WA

This is indeed a worthwhile endeavor and we fully support it.

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Heartland Distillers in Fishers, Indiana supports this proposal. Let me know what I need to do to help.

Stuart Hobson

stuart@heartlanddistilers.com

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The Delaware Phoenix Distillery, Walton, NY fully supports this endeavor.

I am not officially a producer yet. I am still working wiht the Commonwealth of Kentucky on Craft Distillers class of license.

I indeed support this effort also.

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Thank you, Melkon for your hard work on this, The time has come to create a more fair playing ground for Micro Distillers.

Cascade Peak Spirits producers of ORGANIC NATION Spirits supports this resolution.

Sincerely, Diane Paulson/President, David Eliasen, V. President of Cascade Peak Spirits, Inc.

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We here at New Holland Brewing Co. and Artisan Spirits are in FULL support of this proposal. We shall begin speaking with our legislators now. Thanks for the leg work on this.

Cheers!

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Thanks Melkon. We are in support of your proposal. We have been aided by the small brewers exception for years and have certainly seen its benefits for the small brewing industry. One note of caution: When the first small brewers were meeting about defining themselves they originally had 15,000 bbls as an amount of beer that they thought would be amazing if they were actually able to grow to (thus defined microbrewers as those under this number). Brewers like Boston Beer (~1,300,000 bbls now) and Sierra Nevada (~700,000 bbls now) were part of these very discussions. I'm not sure where the 100,000 pg number came from, but although most of us can't imagine this level of succes now, it may very well be the case in the future. Further, with the current small gap between the 60,000 gallons at a lower rate and the 100,000 gallons to qualify, the total tax liability for a producer almost doubles ($700K to $1,350K) when selling 99,999 gallons vs 100,001 gallons. The brewers gap of 60,000 bbls at a discounted rate for brewers making less than 2 Million bbls does not create such breaking point when a certain volume level is achieved.

Brent Ryan - Newport Distilling Company - Newport, RI

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Thanks for everyone who's voiced support! We're up to 20 so far...

Current Producers

1. Modern Spirits LLC 168 W Pomona Ave, Monrovia, CA

2. Colorado Gold LLC, Cedaredge, CO

3. Tuthilltown Spirits, Gardiner, NY

4. Dry Fly Distilling, Spokane, WA

5. Ellensburg Distillery LLC Ellensburg, WA

6. Dynamic Alambic Artisan Distillers LLC Mattawa, WA

7. Great Lakes Distillery LLC, Milwaukee, WI

8. Drum Circle Distilling, Sarasota, FL

9. Grand Traverse Distillery, Traverse City, MI

10. Mystic Mountain Distillery, Larkspur, CO

11. Pacific Distillery LLC, Woodinville, WA

12. Delaware Phoenix Distillery, Walton, NY

13. Heartland Distillers, Fishers, IN

14. Fat Dog Spirits, Tampa, FL

15. Harvest Spirits LLC, Valatie, NY

16. Cascade Peak Spirits, Ashland, OR

17. New Holland Brewing Co. and Artisan Spirits, Holland, MI

18. Newport Distilling Company, Newport, RI

Producers In Licensing Process

1. Sherman in KY

2. Paul in CA

Next steps:

- Build list to 50 supporters -- could everyone contact 2-3 other makers and get them to sign on by this Friday? I'll take care of CA and IL.

- Finalize proposal

- Contact our reps (and probably make a small donation to their re-election funds)

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