PROPOSAL TO REDUCE FEDERAL EXCISE TAXES FOR SMALL PRODUCERS

[Gwydion Stone]

Just a note: 30. Marteau, Seattle, WA and 20. Gnostalgic Spirits, Ltd., Portland, OR are the same thing. I live in Seattle but distill at House Spirits' DSP in Portland. And I'm pretty sure you could add House Spirits to the list of supporters too.

The data for the chart are just the published numbers for Diageo, HRD, and two hypothetical microdistillers, just to show scale. While I think 60,000pg is better than 10,000, when I look at how much bigger the big guys actually are, I feel like 10,000pg is begging for a crumb off the crust rather than a fair slice of the pie. Hmm; should have used a pie chart.

[Melkon Khosrovian]

Just a note: 30. Marteau, Seattle, WA and 20. Gnostalgic Spirits, Ltd., Portland, OR are the same thing. I live in Seattle but distill at House Spirits' DSP in Portland. And I'm pretty sure you could add House Spirits to the list of supporters too.

The data for the chart are just the published numbers for Diageo, HRD, and two hypothetical microdistillers, just to show scale. While I think 60,000pg is better than 10,000, when I look at how much bigger the big guys actually are, I feel like 10,000pg is begging for a crumb off the crust rather than a fair slice of the pie. Hmm; should have used a pie chart.

We're shooting for 150,000 PG out of a max 250,000 PG of production/yr that would qualify for the lower tax tier. Not sure where you got the 10,000 PG, which would be too small.

Please spread the word to the other OR makers to come online and support this initiative.

[Jonathan Forester]

Would you move me to the "Producers in Licensing" thanks. We won't have our permits for another month or three. (We just started rebuilding our distillery, and are enlarging it quite a bit, after becoming a brewery and buying a brewing system.)

[mabate6047]

Downslope Distilling, Inc. supports the proposal

PO Box 253

Littleton, CO 81020

Mitch Abate - Distiller

[Sonja]

Sorry for the lateness, we're certainly behind this - count us in.

North Shore Distillery, LLC

Lake Bluff, IL

Thanks Melkon for spearheading this.

[bamckenzie]

Please add us to the list:

Finger Lakes Distilling LLC

4676 NYS Route 414

Burdett, NY 14818

Brian McKenzie, President

[Gwydion Stone]

Not sure where you got the 10,000 PG, which would be too small.

Me either. I think I may have meant to write 20,000, which I read in one of these related threads somewhere.

[StGeorgeSpirits]

Please add St. George Spirits, Inc. / Alameda, CA 94501 to the list, in support of your petition.

-Jorg Rupf, President

[GeorgeRacz]

We would like to support this great proposal.

We are in licensing process to become the first micro-distillery in Nevada/Las Vegas.

Please add us to the list and let us know if you need any help.

Thanks,

George & Katalin Racz

Las Vegas Distillery, LLC

[Robert Cassell]

Melkon,

I think you should define this in proof gallons. That way you don't lose the arguement of it causing them extra paper work since we already report in this unit of measurement on line 33 of our processing ops. Just trying to help eliminate any arguement they could have for this....

[Melkon Khosrovian]

Thanks for everyone who's voiced support! We've got 43 so far who've signed on through this board or I've spoken with by phone (in parentheses). Almost at critical mass of 50!

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

19. 45th Parallel Spirits LLC. New Richmond, WI

20. Gnostalgic Spirits, Ltd., Portland, OR

21. Blackwater Distilling Inc., Annapolis, MD

22. Cold Smoke Distillery Inc., Bozeman, MT

23. The Solas Distillery, Omaha, NE

24. Parched Group LLC, Richmond, VA

25. AEppelTreow Winery, Burlington, WI

26. Leopold Bros. Small Batch Distillers, Denver, CO

27. The American Distilling Institute

28. The Brewers of Indiana Guild

29. Sweetgrass Farm Winery & Distillery, Union, ME

30. Downslope Distilling Inc., Littleton, CO

31. North Shore Distillery LLC, Lake Bluff, IL

32. Finger Lakes Distilling LLC, Burdett, NY

33. St. George Spirits Inc., Alameda, CA

(34. Philadelphia Distilling, Philadenlphia, PA)

(35. Distillery 209, San Francisco, CA)

(36. Peak Spirits, Hotchkiss, CO)

(37. Maine Distilleries, Freeport, ME)

(38. Clear Creek Distillery, Portland, OR)

39. Ryan & Wood Inc, Gloucester, MA

Producers In Licensing Process

1. Sherman in KY

2. Paul in CA

3. Penobscot Bay Distillery, Winterport, ME

4. Las Vegas Distillery LLC, Las Vegas, NV

[Melkon Khosrovian]

I think you should define this in proof gallons. That way you don't lose the arguement of it causing them extra paper work since we already report in this unit of measurement on line 33 of our processing ops. Just trying to help eliminate any arguement they could have for this....

Agree completely. Had converted #s to PGs a few pages ago:

Reduced excise tax rates apply to the first 150,000 proof gallons of spirits if producers make no more than 250,000 proof gallons per year.

[Melkon Khosrovian]

UPDATE:

As we develop our proposal and gather support, I've reached out to the TTB to make sure they're aware of our interest in creating a lower FET rate and are involved in crafting proposed legislation that not only meets our needs but is simple for all (us and the TTB) to implement.

A few important takeaways from my conversation:

- Our interest in creating a lower tier FET rate was not a shocker to the TTB

- $2.70/PG seemed low to them (have to make sure this is within same parameters as beer/wine and reflects challenges we have in common with them and some that are unique to spirits producers)

- Pool of eligible producers must be limited

- Implementation should be straightforward

Our TTB contact agreed to put us in touch with a dept. liaison who would work with us in developing a workable proposal. They would also provide us with statistics on who pays what so can develop our proposal and analysis in context and within reason.

Need to wrap this up quickly so we can all start talking with our elected officials and before we all get too buried in production/selling.

NEXT STEPS:

- Get support level to 50 producers

- Get statistics and perform analysis

- Frame tight argument with supporting points and analysis

- Start talking to elected officials and ID 1-2 who are willing to sponsor bill later this year or Jan.

[Beauport Bob]

Please add to the list:

Ryan & Wood, Inc.

15 Great Republic Drive

Gloucester, MA 01930

Bob Ryan

Pres.

[Sub Rosa Spirits]

This is of course, a great idea.

As a Board Memeber of the Oregon Distillers Guild, I have circulated the petition to our members. I can't see why all of them would not sign on. In fact, several already have. With a growing number distilleries here in Oregon, we'd like to add our voice in support of this tax reduction proposal. When it comes time that you need addresses and names, let me know.

Artisan Spirits

Portland, OR

Bendistillery

Bend, OR

Brandy Peak Distillery

Brookings, Oregon

Cascade Peak Spirits

Ashland, Oregon

Clear Creek Distillery

Portland, OR

Dolmen Distillery

McMinnville, Oregon

Highball Distillery

Portland, OR

House Spirits

Portland, Oregon

Indio Spirits

Tigard, Oregon

Integrity Spirits

Portland, Oregon

Liquid Vodka

Warren, OR

McMenamins Edgefield Distillery

Troutdale, OR

New Deal Distillery

Portland, OR

Ransom Distillery

McMinnville, OR

Rogue Spirits

Portland, Oregon

Sub Rosa Spirits

Portland, Oregon

[Melkon Khosrovian]

We've got 59 so far who've signed on through this board or I've spoken with by phone (in parentheses). We've crossed the critical mass of 50!

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

19. 45th Parallel Spirits LLC. New Richmond, WI

20. Gnostalgic Spirits, Ltd., Portland, OR

21. Blackwater Distilling Inc., Annapolis, MD

22. Cold Smoke Distillery Inc., Bozeman, MT

23. The Solas Distillery, Omaha, NE

24. Parched Group LLC, Richmond, VA

25. AEppelTreow Winery, Burlington, WI

26. Leopold Bros. Small Batch Distillers, Denver, CO

27. The American Distilling Institute

28. The Brewers of Indiana Guild

29. Sweetgrass Farm Winery & Distillery, Union, ME

30. Downslope Distilling Inc., Littleton, CO

31. North Shore Distillery LLC, Lake Bluff, IL

32. Finger Lakes Distilling LLC, Burdett, NY

33. St. George Spirits Inc., Alameda, CA

(34. Philadelphia Distilling, Philadenlphia, PA)

(35. Distillery 209, San Francisco, CA)

(36. Peak Spirits, Hotchkiss, CO)

(37. Maine Distilleries, Freeport, ME)

(38. Clear Creek Distillery, Portland, OR)

39. Ryan & Wood Inc, Gloucester, MA

40. Artisan Spirits, Portland, OR

41. Bendistillery, Bend, OR

42. Brandy Peak Distillery, Brookings, Oregon

43. Dolmen Distillery, McMinnville, Oregon

44. Highball Distillery, Portland, OR

45. House Spirits, Portland, Oregon

46. Indio Spirits, Tigard, Oregon

47. Integrity Spirits, Portland, Oregon

48. Northwest Distillery Inc, Warren, OR

49. McMenamins Edgefield Distillery, Troutdale, OR

50. New Deal Distillery, Portland, OR

51. Ransom Distillery, McMinnville, OR

52. Rogue Spirits, Portland, Oregon

53. Sub Rosa Spirits, Portland, Oregon

54. Integrity Spirits, Portland, OR

Producers In Licensing Process

1. Sherman in KY

2. Paul in CA

3. Penobscot Bay Distillery, Winterport, ME

4. Las Vegas Distillery LLC, Las Vegas, NV

5. River Town Distillers LLC, Snohomish, WA

[Melkon Khosrovian]

Now, on to analysis...

According to Bill Owens' back-of-the-envelope math, all 150+ small spirits producers in the U.S. (including some large ones like Tito's and St. George), account for less than 500K 9L cases sold per year. By the Distilled Spirits Council's stats, all spirits sold in the U.S. accounted for 177 million 9L cases in 2007. That puts small producers at 0.28% of the market (vs craft beer, which is 3-4% of the overall beer market).

If we get our proposal passed, the net revenue loss would total $10 mil or 0.23% of all federal excise taxes collected from spirits sold in the U.S. Here's how I calculated it (someone please check my math -- it's Friday night and I'm sleepy):

......................................Small U.S. Producers.......All Producers - Small U.S........Total.....................% Impact

9L Cases........................................500,000....................... 176,500,000........... 177,000,000

Proof Gallons (@80P).......................952,381....................... 336,190,476........... 337,142,857

Current FET......$13.5 for all...........$12,857,143................. $4,538,571,429 ........ $4,551,428,571

Proposed FET...$2.70 & $13.50...... $2,571,429..................$4,538,571,429..........$4,541,142,857

Tax Impact.................................- $10,285,714.....................................$0............- $10,285,714..............-0.23%

If these numbers are close to correct, then the potential loss of excise tax revenue for creating a lower tier for small producers would be minimal.

We need to come up with a good approximation of the flip side of this equation for the benefits we generate for the U.S. economy (as most of our products compete with imports). I don't image it would be difficult to prove that the 150+ of us add up to more than $10 mil tax loss in the context of local employment and employment taxes, purchase of local goods and services, and, in some states, tourism.

Please weigh in on the above numbers and anything you could add to the benefits analysis. At this point, I'd like to invite Paul McCann of Parched Group LLC, a fellow maker who was once a gov't policy analyst, to help us put this in a format that would make the most sense to elected officials.

I think we're pretty close to ready to present this to our elected officials. Thanks all for your support. Get ready to talk to your congressman or woman!

NEXT STEPS:

- Get support level to 50 producers (DONE)

- Get statistics and perform analysis (DOING)

- Frame tight argument with supporting points and analysis (DOING)

- Start talking to elected officials and ID 1-2 who are willing to sponsor bill later this year or Jan. (NEED TO DO)

[rich phillips]

You have our support!!!!!!!!

Rich Phillips, integrity spirits, Oregon

909 se Yamhill

Portland, OR 97214

[Cory Zonich]

Count us in.

Northwest Distillery, Inc.

Warren, OR

We make Liquid Vodka, please delete the Liquid Vodka entry above.

Cory Zonich

President

[Fred Linneman]

I read here that the TTB thinks that $2.70 is not a proper tax rate.

Before we develop points to support a reduction, I think that we should determine what a proper tax rate is. This will aid us in determining the numbers to utilize in order to justify a proposed tax rate and determine potential tax revenue lost.

It would also be helpful to determine the number of distillers, we can determine a forcast of new distilleries over the next five years. This would help the determination of potential tax revenue gain!

Also, does any one have any information on small distillery individual growth rates. What is an average that each small distillery grow at 10% per year, 50%? This information would also aid in the future projections of tax revenue gain

Fred

[Skip Rock]

This is a bit late and I'm not a producer yet (still working on changing county code) but for what it's worth add me to the list.

River Town Distillers, LLC

5614 66th Ave SE

Snohomish, WA 98290

I have a decent amount of contacts in DC as a result of my day job. I'd be happy to help further this on to some WA folks.

Ryan Hembree

[Melkon Khosrovian]

I read here that the TTB thinks that $2.70 is not a proper tax rate.

I think that $2.70 is a perfectly reasonable and defensible rate. Here's why:

- It represents 20% of the full spirits excise rate, which is higher than the lower wine tier at 18% -- we could even go even lower to $2.43 and match wine's 18% rate

- Now that we have some rough numbers, the tax loss of 0.23% seems minuscule compared with its potential benefits to spur the sector's growth

- Impact on much larger, more efficient competitors will likely be similarly minuscule

Unless we get some radically different stats from the TTB that would skew the above figures, I think we should stick with our 20% lower tier not only for the above reasons, but also because how expensive it has become to get our products on and off shelves. I bet that every single one of us could use the extra $20/cs for marketing support.

[Ralph at Tuthilltown]

Melkon's numbers seem reasonable. I would suggest as the discussion moves forward with the Fed, we focus on the fact this revenue is not going to be "lost" to the Fed as a result of the adjusted rate for the new tax paying startup micros (all existing and future), since it did not exist only a couple of years ago. This is NEW revenue from a NEW and developing industry. If the Fed wants to enjoy increased revenue from a NEW growing and expanding industry, then it is easy for them to justify the rate.

As to the question posted earlier about growth rates; if we are any example, Tuthilltown doubled it's first year sales in the second year; tripled sales in the third year and we expect to double that number again over the next 18 months as we rollout nationally and continue to export. And we're tiny and poor as churchmice. From zero to $1.2mil in sales in under three years, and only the last year with a distributor, before that we had a sales, marketing, distribution team of one (me). Don't skrimp on projections of growth. As the consumers learn more all our sales will increase; read aloud to legislators: This is only he beginning of the revitalization.

It is my guess that the micro producers will grow in numbers, doubling in the next five years (or fewer). Considering how many small ag distillers were in NY State before Prohibition (some numbers testify to over 1,200 farm distilleries pre Prohibition) it is not inconceivable that our numbers nationwide could grow to 1,000 in the next ten years. How do the numbers fall out for NEW revenue to the Fed at that rate, I wonder.

Remember all: THIS IS NEW REVENUE, we are not taking money away from the Fed or placing any additional burden on big alcohol by this proposal.

[Charles@AEppelTreow]

I think Ralph makes a good point - these are new businesses and hence new Revenue. Giving them a credit when they are small is a tiny drop in the bucket, and the Dept.'ll get all the more revenue if/when these businesses succeed.

I wouldn't get hung up on trying to pick a number based on some logical formula. Pick one and _rationalize_ it. The exact size of the credit isn't really important - just make a good argument for it. And it should be big enough to cover the basic cost of administration. Anyone know how much the TTB spends on DSP regulation compared to BW or BR regulation? (Hmmm... 1 operations report for a winery vs. 3 operations reports for a DSP (production/warehouse/processing). So 3X the table wine tax rate or $0.51/pg. Even 3X the dessert tax rate {which has spirits in it} would be $2.01/pg.)

I seem to recall that I've seen an article in the Federal Register that included the justification for the size of the tax credit given to hard cider producers. Maybe that would yield some useful tips. I'll try to find that again.

[Melkon Khosrovian]

Spoke this afternoon with TTB's tax specialists in all three alcohol categories to see how we can best implement this proposal if we manage to pass it. (Special thanks to Cindy, Amy and Amy from the TTB -- you were incredibly helpful!)

Here's the structure that seems to be in place as best as I could gather from my conversations:

- Beer: producers select a size category at the beginning of the year and pay the appropriate rates (full, reduced); if they go over, they begin paying the higher tier; there's an annual review to project and select an appropriate category

- Wine: producers select a size category at the beginning of the year and pay the appropriate rates (full, reduced tiers); if there's a chance to go over reduced tiers, producers pay full rate and file for refunds at the end of the year

From the above, the beer industry's structure seems like the best financial option -- pay as you go and as you get bigger. It implies that we'll need to keep running tallies of withdrawals YTD in case we go over, but that's something all of us should have at our fingertips anyway.

Thoughts?