U.S. Sen. Jon Tester, D-Montana, will be at the KettleHouse Brewing Co. production facility in Bonner on Saturday to talk to Missoula craft brewers and others about reducing taxes.
On Feb. 6, Tester co-sponsored a bill that would permanently extend the Craft Beverage Modernization and Tax Reform Act. That bipartisan bill reduces the excise tax on a barrel of beer from $7 to $3.50 a barrel on the first 60,000 barrels for domestic producers. It is currently set to expire in 2019. The bill also reduces excise taxes on wine and distilled spirits.
Tester said that businesses need long-term certainty about their tax bills before they make major investments, especially in an industry like brewing that requires huge, expensive equipment and highly trained workers.
“As of right now, it does not give the kind of certainty that businesses need,” Tester said. “The microbrewery business in Montana has been an incredible success story. The microbrewery and distillery industry in Montana has been nothing short of amazing. I think it has even more opportunity to grow, myself. It’s good fun, it’s good clean jobs and it adds value to ag products we raise in the state.
"This bill has lots of good reasons to get bipartisan support.”
Along with Tester, Sen. Steve Daines, R-Montana, co-sponsored a two-year extension of the bill that was finally passed in 2017. A spokeswoman for Daines said he "strongly supports making (the Act) permanent."
“Montana is home to a vibrant craft brewing industry that supports our robust barley growers and creates more good-paying jobs,” Daines said in 2016 when he co-sponsored the bill. “I’m proud to support common sense efforts and stand with our small brewers to help them grow their businesses in Montana’s communities.”
Tester said the reduction in excise taxes means $200 million in lost revenue per year for the U.S. government, but he believes the reduction in taxes pays for itself because it allows breweries, distilleries and wineries to invest in hiring and expansions. That means the businesses pay more in taxes as they expand, pay more in property taxes as they add real estate, and their new employees pay more in income taxes.
“This bill costs a fair amount of dough,” he acknowledged. “But these guys have a proven track record, so there’s not a lot of impact on tax revenue coming in. This wasn’t this way 15 years ago, even. Now there are over 80 small breweries in Montana and 2,700 jobs that can be ramped up even more. It allows them to hire more people, create more economy and create real value on ag products.”
There are more than a dozen breweries in the Missoula area with more on the way.
Tim O’Leary, who owns KettleHouse Brewing with his wife Suzy Rizza, said the reduction in excise taxes helped breweries all over the state add employees. His company recently completed a large new expansion of their canning ability by building K3, the new facility in Bonner.
“We talk about how we save money, but it stays right here in Missoula or Bonner,” he said. “That’s a significant amount of money that doesn’t get shipped off to Washington, D.C. Because of this we’ve hired four people in the last year and our payroll has gone up over $300,000 a year. Having that excise tax reduction saved us close to $70,000.”
That’s money people are spending in Montana, according to O’Leary.
“Now, (breweries) may be buying equipment made elsewhere, but they’re improving their processes and making it more competitive and paying other taxes, like property taxes,” he said. “All that money just cascades.”
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O’Leary said that aluminum tariffs imposed by President Donald Trump have driven up the cost of the huge quantities of aluminum his company uses to can beer.
“It’s been great to see that money (from excise tax reductions) but the tariffs on aluminum have caused uncertainty in that market, so our prices for our cans went up and almost completely wiped out our excise tax saving,” he explained. “The increase in aluminum hasn’t wiped out the whole tax savings but put a significant dent in that.”
Tester said he agrees with O’Leary that the tariffs are hurting some businesses.
“The tariffs on steel and aluminum are killing us and the tariffs on grain are killing us in the other direction,” Tester said. “Consumers are paying both directions. We’ve got to find a solution. We’re seeing an increased number of foreclosures in ag and it’s getting worse. People in the craft beverage market, aluminum can costs are killing them. It’s not good for the economy overall."
Tester said he hopes a solution can be found soon.
"As we work to hold China accountable, which is important to do, you don’t want to shut down businesses in the process. So it’s a big concern.”
According to the news organization Reuters, the U.S. Department of Agriculture has paid out $7.7 billion so far to farmers in aid designed to offset the negative impact of tariff imposition. That money comes from U.S. taxpayers.
Tester said even that much money is not enough.
“That’s pennies in the dollar if you’re talking about the bailout money,” he said. “That’s pennies on the dollar on what’s being lost. I’ll just tell you, I talk to a number of farmers and you can chase a lot of crops to try to figure out what’s going to make a lot of money, whether it’s wheat or pulse or oilseeds, or if you’re talking cattle or pork, all the prices are really depressed. It’s not good, and the foreclosures bear that out.”
O’Leary said a permanent extension of the excise tax reduction is an important step to keep momentum going on a fast-growing industry in Missoula and Montana.
“We’ve been able to build out there (in Bonner) and accomplish what we have because of strong customer support,” O’Leary said. “Consumers are choosing local and choosing fresh and the reduction of excise tax certainly helps. It would be a lot better if we could rely on that moving forward. I don’t want to hire somebody now, and in 2020 I don’t want to have to say ‘see you later’ because the taxes go back up.”
O’Leary said there’s a reason the bill got bipartisan support in Congress. A version of the same bill was introduced in the House the same week with sponsors from both sides of the aisle.
“The cool part about craft brewers is that it’s such a bipartisan effort,” he said. “It’s really cool. Montana is also a high producing state for malt barley. We use barley that’s malted and grown here. So the more Montana beers people drink, the more Montana barley we’re using and others are using. It’s all just tied together.”