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Sunday, 29 November -0001 19:03

Over a Barrel: Lawsuit Leads to New Costs for NYS Breweries

By | Business

SARATOGA SPRINGS – Microbreweries in New York State received some bad news earlier this month when the fallout from a lawsuit filed against the state deemed tax breaks offered to in-state beer makers were ruled unconstitutional. The result could cost New York’s quickly growing craft beer industry millions of dollars in once-waived taxes and fees. Previously, in-state microbreweries were exempt from state excise taxes if they brewed less than 200,000 barrels annually. The same goes for label-registration fees, which can cost upward of $150, and includes small-batch or limited-release beers.

 

The New York State Liquor Authority and the Department of Taxation and Finance conceded that the tax breaks were unconstitutional, citing the precedent from U.S. Supreme Court decisions that prohibits state government to give preferential treatment to products produced within the state. The suit, brought forth by Massachusetts-based Shelton Brothers Brewing, was originally filed in 2006 to challenge a ruling by the State Liquor Authority that certain Ridgeway brand labels were targeting underage drinkers. The suit claimed the plaintiff’s First Amendment rights were being violated, but also included a challenge to the SLA’s practice of imposing label and registration fees on out-of-state breweries, while waiving the same charges for small in-state breweries on the first 200,000 barrels filled.

At first glance, you might wonder what the fuss is about over a $0.14 increase per gallon of beer brewed and sold in New York State. Each barrel of beer contains 31 gallons. That means an increase to $4.34 per barrel of beer brewed. The news gets worse for breweries within New York City limits, who will see an increase of $8.06 on every barrel of beer brewed.

Saratoga Springs is home to Olde Saratoga Brewing Company, who between the 30 different styles of beer brewed throughout the year produces an estimated 36,000 barrels a year.

“If we sell it to Texas or California, there’s no difference,” said Keith Ricciardone, general operations manager for Olde Saratoga Brewing. “We did around 36,000 barrels last year. If we sold all of that in New York State, it would have come to $158,000 more to stay in business. Now, we’re going to 50,000 barrels this year, and that is going to cost $217,000. Where’s that money going to come from? We’d have to pass it on to the consumer, and that’s just not right.”

It’s estimated that at least half of everything produced by Olde Saratoga is then sold in New York State. This would mean an annual cost of almost $80,000 annually that never existed before. The brewery had just added two new tanks in late 2011 to up their brewing capacity by another 1,000 barrels a month.

“It might hurt sales,” said Ricciardone. “We can’t reinvest or put more tanks in and make more beer, because the more you do that the more you’re penalized.”

For now, relief might come in the form of a Federal tax break. United States Senator Chuck Schumer is supporting the national BEER Act, which would provide a 50 percent break on the current $7 excise tax imposed on each of the first 60,000 barrels produced for breweries across the country to only $3.50.

Olde Saratoga Brewing Company is just one of dozens of in-state breweries now affected. New York boasts the most microbreweries of any state on the east coast, and ranks only behind California and Colorado nationally. While those breweries would still be subject to paying taxes on anything shipped into New York, other states charge less in excise tax per barrel, and could reduce costs associated elsewhere to make up the difference. Despite being one of the fastest-growing industries in New York State, could a change like this serve to stifle that growth, or perhaps convince brewers to move their operations to a different state?

“It could if people don’t have that kind of money to spend,” said Ricciardone. “I would say if I was thinking about starting a brewery I’d consider going to Vermont. Even then, anyone in Vermont shipping into New York State has got to pay that tax.”

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