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DISCUS AND ADI


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In a discussion with a DISCUS representative over the weekend at TALES OF THE COCKTAIL in New Orleans, we learned that DISCUS is interested in having ADI join with DISCUS to lobby against the tax increase anticipated to be submitted to the Fed after the first of the year. The question posed back to the representative was "How can we join you, when we can't even become members of DISCUS?" The response was unsatisfying. "Any company can join." I pointed out that the cost of membership was prohibitive, six figures. "Oh but we've reduced the cost." I asked the new figure. "$75,000," was the response. Both Bill Owen and I laughed out loud.

After, between laughs, commenting that figure was ridiculous, I added that kind of approach only confirms all the suspicions of the small producers about DISCUS. He suggested that we might be able to arrange an "Associate" membership. But that, I reminded him, is not a full membership status, like the difference between "civil union" and "married". We are not second class citizens, and we actually produce alcohol.

The question is how to work with DISCUS without being relegated to the "kid's table". My position, which I made known to the DISCUS fellow in no uncertain terms, is that DISCUS can't have it both ways.

DISCUS anticipates the increase which will be proposed will increase Fed excise tax to match the increase in inflation since the last increase in 1995. If this were to be adopted the tax would increase to nearly $20 per proof gallon. An increase of this magnitude would mean millions of dollars in increased tax to big alcohol, DISCUS members. But we have other fish to fry, as Penn has sugggested in an earlier post to this forum. It is in the best interests of the micro distillers to lobby for a substantially reduced tax rate for the micro-distillers matching the breaks given our cousins making beer and wine. This is not the same fight the DISCUS members want to engage at the Federal level.

I wonder the feelings of other distillers. For those who are not aware, DISCUS has 12 members, who account for over 80% of alcohol sales in the US. The members are primarily "holding companies", not spirit producers. We (ADI members) are now 140 members. What we lack in financial wherewithal, we more than make up for in the amount of grassroots NOISE we can make, focused on our Federal and State legislators. The potential growth of the craft distilling industry bodes well for the power of our collective voice. And the fact DISCUS came to us hints at the rising level of seriousness with which we are being viewed by our big alcohol cousins.

In my closing remarks to the DISCUS representative I suggested that ADI should indeed participate with DISCUS, not from within, but with a seat at the adults' table, a full voice in any discussions with legislators, and representing the interests of the craft distiller, which to a large degree are independent of the interests of DISCUS. I believe we can work with DISCUS, but we must be wary. And any legislative efforts of DISCUS that ADI membership chooses to undertake must not be in lieu of our own efforts on our own behalf.

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Ralph,

Well put. I agree that a grassroots effort should be launched on behalf of all small distillers to lower the tax rate. I have already spoken with all of my area Senators and Legislators. I am pushing for a sponsorship of a bill that we can all get behind. That effort needs to be duplicated by each and every licensed small distiller. This is an all for one proposition.

As far as DISCUS is concerned, I can't see them really embracing our goals and objectives. As small producers, we are positioned to produce products and approach marketing in a way that they can not. They may want to "play" with us, but only until one of us hurts one of them - then we'll be kicked to the curb. If I was DISCUS, I'd want the ADI in my pocket as well. History tells us that small producers will outgrow the larger producers, albeit at a small volume. Additionally, most news or press these days is all about small distilling, not major manufacturers. Maybe we should propose a $100,000 ADI membership to DISCUS (based solely on volume.) We'll could then credit them their $75,000 and come out $25,000 ahead. They need us more than we need them.

Don

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Thank you Don. Couldn't agree more. And I like the idea of increasing membership fee based on volume, with a substantial leap from the current membership fee for small producers to the big alcohol guys.

The big boys may have deep pockets and connections, but we have numbers, voting numbers that count for the lawmakers. And the press we can generate will be far more positive than any press Diagio or Bacardi could get; given the foundation of our industry (small businesses, local and regional employment and taxes, agricultural, eco-friendly operations, etc.)

The tax question presents an interesting possibility that may put us at odds with DISCUS. If the Fed reduces our tax to half the full amount the big producers pay, and increases the big producer tax to meet inflation ($20 a pg), the amount the Fed would collect from the small distillers would be $10 per proof gallon, a reduction in what we currently pay; which will be more than made up for by the $20 a pg paid by the big boys. So the case could be made that smaller producers could benefit by the increase charged to the big producers coupled with a reduction for the micros. Perhaps we should be looking at trying to get our legislators to tie the increase in the big alcohol tax to a decrease in the small alcohol tax rate.

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DISCUS will have to decide for itself if it wants to be the trade association for big alcohol or the trade association for all producers.

ADI and DISCUS can certainly work together on a cause of mutual interest without cross-membership.

It's a little misleading or, at least, opaque to say the members of DISCUS are holding companies, not producers, as most of them own distilleries through the companies they hold, and most major beverage alcohol distilleries in the U.S. are owned by DISCUS members.

Two important exceptions: Four Roses and Heaven Hill. Their complaint is the same as yours, membership is too costly.

It also might be better for ADI members to separate from DISCUS on the tax issue, arguing that it would be economically imprudent to hit this young industry with a big tax increase at this time, i.e., don't strangle the baby in its bed.

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I agree with the tax comment wholeheartedly.

Penn had suggested that we should be lobbying to get the Micro Distiller excise tax down entirely, not unlike the consideration given to micro brewers and wineries. If we were to argue for no tax hike or reduced hike, it may be counterproductive to our own wish to have the same consideration as our beer and wine cousins.

That said, we should be finding a way to get DISCUS to give us a real seat at the table whenever discussions of this sort are conducted. I may have taken some license in my description of DISCUS members (not making alcohol, yes some do). The point is that we may be in the same industry but we are not in the same business. I'm all for working together. I'm totally opposed to being absorbed or condescended to.

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Ralph, Chuck- I heartily agree with your comments and thoughts. SO, how should we take it further? An increase in the tax will hit me hard. Maine is already very anti-alcohol and just raised taxes on all beverages a few months ago by a large amount. We need to be involved with legislation, to recognized as different from the big boys, and to be taxed less. Otherwise this fantastic micro-distilling movement is going to get crushed in the bud.

-Jonathan-

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DISCUS makes the excellent point that taxes on alcohol are actually job-killing taxes on the hospitality industry. Most voters don't know anyone who works for an alcohol producer or distributor, but everybody knows someone who works in a bar or restaurant. Since on-premise sales and relationships with your local on-premise retailers is the biggest part of the business of most small distillers, that's the most natural alliance. Alcohol taxes aren't some painless source of revenue. They cost local jobs in the hospitality industry. Especially if you are located in an area where tourism is an important part of the local economy, tourism and hospitality go hand in hand and what is bad for one is bad for both.

Go to Stop Hospitality Taxes for more information.

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Guest sensei
DISCUS makes the excellent point that taxes on alcohol are actually job-killing taxes on the hospitality industry.

And the time of the Great Depression and no tax revenue from industries like bottle makers to bartenders prove this to be a fact, not just a theoretical assertion by a "special interest."

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  • 2 weeks later...

Melkon of MODERN SPIRITS is drafting a position statement on taxing small producers. It is a good first project for the organization. If we can get everyone on board with the proposition we can begin to lobby our Fed representatives. Unfortunately (though unavoidably) it all boils down to your own personal political action. Much as we want to just focus on making our goods, we have to become politically active or we will be overlooked.

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It would be good if there was a FAQ or something identifying the Congressional committees directly responsible for FAA/TTB/FDA regulations as well as a list of the member of those committees would be very useful.

It is these committees that decides whether a proposed bill moves forward or not. It's to those folks that we need to communicate our positions.

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