Tax Reform Brings Cheer to S.C. Breweries

Richard Breen

Tuesday, May 8th, 2018

On May 11, R.J. Rockers Brewing Co. in Spartanburg will be celebrating its 21st birthday – a significant date because the beermaker will now be “legal,” so to speak.

Another date that may become a milestone for R.J. Rockers and other craft brewers is Dec. 22, 2017. On that day, President Donald Trump signed into law a lengthy tax reform bill that included breaks for beer.

Under Part IX, Subpart A of the law, wedged between the elimination of a tax break for college sports season tickets and a passage titled “Modification of Tax Treatment of Alaska Native Corporations and Settlement Trusts,” is “Craft Beverage Modernization and Tax Reform.” What it does is lowers the excise tax on beer for the next two years.

“It’s a huge help,” says Henry Depew, president of R.J. Rockers. “It basically halved our tax on the federal side.”

Some craft breweries in South Carolina say they are using the savings to expand their businesses.

“It certainly helped fuel some growth for us,” says David Epstein, owner/brewer with New South Brewing in Myrtle Beach. “We have a small, manual canning line right now. The first step for our growth will be a new canning machine.”

Epstein expects New South to brew 2,500-3,000 barrels this year and perhaps 4,000 in 2019. R.J. Rockers expects to produce between 6,000-10,000 barrels of beer in 2018, according to Depew.

All that beer will be taxed at $3.50 per barrel in 2018-19 under the new rules, compared to $7 per barrel previously. The $3.50 rate applies to up to 60,000 barrels. The rate jumps to $16 per barrel from 60,000- 6 million barrels and is $18 per barrel over that amount.

“For small breweries, this savings should be utilized to maintain and generate jobs while strengthening the brewery,” says Scott Birkner, senior vice president-manager of craft beverage lending at United Community Bank. “For the larger brewery it will support long-term investments as well as create jobs by growing the business.”

R.J. Rockers added equipment and staff, according to Depew. The brewery has also opened an on-site restaurant to create a new revenue source.

“In order to open a restaurant, it always costs more that you think,” Depew says.

Excise taxes on items such as alcohol and tobacco are often labeled a “sin tax.” Owner Bryan O’Neal of Benford Brewing Co. says they’re mainly a nuisance.

“It makes you feel better about writing them a smaller check,” he says of the tax cut. “It’s providing some relief.”

O’Neal brewed 2,000 barrels in 2017, serving the Carolinas and Tennessee. He’s looking to sign on with distributors in additional states.

“We’d like to sell beer in 50 states,” O’Neal says. “We just need the right partners.”

Benford is in rural Lancaster, about a half hour from Rock Hill.

“The brewery is in the backyard on my farm,” he says. “We just finished a major expansion project. I’d like to aim for 5,000 barrels this year.”

Still, he doesn’t see the tax cut as generating enough savings to fund any more jobs than the one part-timer he has on staff right now.

“At the rate we’re going right now, the two of us can handle it,” O’Neal says.

According to the Brewers Association trade group, retail sales of craft beer were up 8 percent in 2017 and now account for more than 23 percent of the $111.4 billion U.S. beer market. In South Carolina, craft breweries produce more than 108,000 barrels per year, which ranks 34th nationally.

The law includes tax breaks for wine and distilled spirits. For example, Striped Pig Distillery in Charleston will now pay $2.70 per proof gallon on its rum, whiskey, gin and vodka compared to $13.50 before.

“We look to save between $20,000-$50,000 this year,” says owner-distiller Todd Weiss. “Previously, we had paid as much as Jack Daniel’s or Jim Beam and we didn’t get the bulk discounts on things like grain.”

Striped Pig also serves as a contract distiller for other brands, which will share in those savings, according to Weiss. Striped Pig is currently available in South Carolina and Washington, D.C., and Weiss says they hope to channel their savings toward regional expansion.

“We don’t know how long it’s going to last,” he says. “We don’t want to waste it.”

Brewers and distillers hope the tax breaks will be extended by Congress.

“With the number of local breweries opening across the country,” Depew says, “there hopefully will be a loud voice.”

Birkner says brewers are encouraged to keep track of the capital investments and jobs that were created due to the tax savings.

“The breweries that I have discussed this topic with are making it a priority to continue to lobby on this issue to make this permanent,” he says, “and not just for the next two years.”