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As I’ve explained in a previous post, there will be some trickle-down that would reach consumers. But the reality is the breweries would pay this tax. That is important to understand, especially when you hear this statement: it gives out of state breweries a competitive advantage. I would like to explain that statement.
There has been some confusion about who, exactly, would be required to pay this tax. It’s simple, all breweries would have to pay this tax on the beer they sell in Washington. That includes out of state breweries. As it stands now, breweries only pay this tax if they sell more than 60,000 barrels of beer per year in Washington. With the new tax in place, all breweries would pay the tax regardless of how much beer they sell. The proposal is to extend this tax to all breweries large and small.
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With the 60k barrel exemption removed, Foggy Noggin Brewing, Deschutes Brewing, Machine House Brewing, Sierra Nevada Brewing, and all others would have to pay this tax on all the beer they sell in Washington, even if they sell less than 60k barrels per year. (In the case of the out of state breweries, it is paid by the distributors, or something, but the tax does indeed get paid. Honestly, I am not exactly sure how the nuts and bolts work, but it does get paid.)
Remember that the additional $15.50 per barrel would be in addition to the already-high rate that Washington demands. Even without this new tax, Washington’s rates are already among the highest in the country. Massively higher than our neighbors.
When we talk about a competitive advantage, here is what we mean:
A brewery pays excise taxes to the states in which it sells beer. Such taxes are based on the amount of beer it sell in each state. An out of state brewery pays a lower rate on the vast majority of the beer it produces because the vast majority of the beer it produces is sold in its home state. (Or sold in states other than Washington.) It only has to pay the very high Washington rate on the little bit of beer it sells in Washington. This gives an out of state brewery a huge advantage over a Washington brewery because the Washington brewery sells most or all of its beer in Washington. The Washington brewery pays the Washington rate on all or most of its beer. It creates a home field disadvantage for Washington breweries.
None of this would matter if Washington’s excise tax rate was just a bit higher than the excise tax rate in other states. It does matter because Washington’s tax rate is already much higher than our neighbors. The proposed increase drastically broadens an already massive gap.
In other words, an out of state brewery can take a “hit” on the beer it sells in Washington. They don’t have to worry about making a normal margin on the Washington kegs/cases because it represents a small portion of overall sales. I admit, that’s all speculative, but it makes sense to me.
Note – Washington breweries only pay this tax on beer sold here in Washington. If a local brewery were to ship all of its beer to Oregon (as if), then they would not pay the Washington tax on it. They would pay the Oregon tax on it.
