New Jersey Craft Beer Industry Toasting Craft Beverage Modernization & Tax Reform Act

New Jersey Craft Beer Industry Toasting Craft Beverage Modernization & Tax Reform Act

A controversial new federal tax law will have a wide range of impacts on New Jersey businesses. For craft brewers, the legislation is a clear win, thanks to the inclusion of the Craft Beverage Modernization and Tax Reform Act of 2017. The new law aims to update and modernize the excise tax and regulatory requirements for craft brewers, vintners, and distillers.

New Jersey Craft Beer Industry 

The New Jersey craft beer industry has grown significantly in recent years. There are more than 82 production breweries and 15 brewpubs currently operating in New Jersey, with much more in the startup stage.

Due to an outdated and highly restrictive regulatory structure, the growth of the New Jersey craft beverage industry was substantially restricted. This changed when, in 2012, the state adopted new laws for microbreweries and brewpubs. The amended law increased the allowable annual production for brewpubs from 3,000 barrels to 10,000. The changes also authorized brewpubs holding a Restricted Brewery License to sell and distribute their beer to licensed wholesalers, whereas previously the beer could only be sold at an adjoining restaurant. With the grant of additional retail consumption licenses, a company can now operate as many as ten brewpubs in New Jersey.

The changes also impacted microbreweries holding a Limited Brewery License. Craft brewers can now sell beer for consumption on the premises in connection with a brewery tour, where they were previously limited to providing free four once samples. Patrons can also purchase 15.5 gallons or less (roughly a keg) for off-premises consumption, which is a significant increase over the two six-packs allowed under the prior law.

The license application fees for the Limited Brewery License range from $1,250 to $7,500 and are dependent upon production capacity. The fee to apply for a Restricted License is $1,250, with an additional $250 due for every 1,000 barrels produced beyond the initial 1,000 barrels.

Changes Under the Craft Beverage Modernization and Tax Reform Act

The goal of the Craft Beverage Modernization and Tax Reform Act is to fuel the growth of the craft beverage industry through tax relief and reduced regulation. Most notably, the federal excise tax will be reduced to $3.50/barrel (from $7/barrel) on the first 60,000 barrels for domestic brewers producing less than 2 million barrels annually. It will be reduced to $16/barrel (from $18/barrel) on the first 6 million barrels for all other brewers and all beer importers. The excise tax relief will be phased out over two years, unless extended via subsequent legislation.

The tax reform law also contains several non‐tax provisions that simplify regulation on craft brewers by:

• Allowing for consolidated bookkeeping for brew pubs.
• Expanding the list of ingredients that could be included in a beer without approval from the Alcohol and Tobacco Tax and Trade Bureau (TTB).
• Allowing small, unaffiliated brewers to collaborate on new beers by giving them the flexibility to transfer beer between breweries without tax liability.
• Exempting beverage producers from complex capitalization rules for aged products and level the playing field between U.S. businesses and their international competitors.

The Brewer’s Institute, a national trade organization for the beer industry, projects that the excise tax relief created under the new tax law could potentially create $320 million in annual economic growth for the industry. While larger beer companies like Anheuser-Busch will experience some tax relief, the new law will have the greatest impact on the country’s smallest brewers.

“There’s a lot of competition out there,” Kevin Sharpe, the founder and president of Dark City Brewing Co. in Asbury Park, told NPR. “Cutting our quarterly excise tax in half would give us this awesome amount of money lying around, so we could boost our quality control lab, buy more new, exciting hops, and hire more employees.”

Ryan Krill, a co-founder of Cape May Brewing Co. agreed. He has estimated that the new tax code provision will save about $50,000 on the New Jersey brewery’s 12,000 barrels. “The tax reform bill is really important to us because it reduces our beverage excise tax bill,” Krill told CNBC. “We pay federal and state excise taxes, and sales tax in our tasting room. This reduces the level of beer tax we pay, which is really exciting for us because we can take that money and invest in people, equipment and real estate.”

For craft brewers and other New Jersey craft beverage businesses, the new tax code provides a number of new opportunities. To help ensure that you make the most of the tax savings, we encourage you to work with experienced counsel.

Do you have any questions? Would you like to discuss the matter further? If so, please contact me, Gary Young, at 201-806-3364.