Distillers won a reprieve from Congress on Tuesday, as lawmakers moved closer to approving a one-year extension for a popular tax cut that benefits certain alcohol producers.
The extension was tucked into a broader package of tax and spending changes that lawmakers are expected to vote on this week. Congress must pass the agreement by Friday to avoid a government shutdown.
The tax package also renewed an expired credit for companies that use biodiesel fuel, deductions for mortgage insurance premiums and a more rapid depreciation for racehorses, among other provisions.
The tax cut for alcoholic-beverage producers, known as the Craft Beverage Modernization and Tax Reform Act, was originally passed as a two-year provision in the Tax Cut and Jobs Act of 2017. The legislation reduced the amount that all distilleries paid on the first 100,000 proof gallons from $13.50 to $2.70 (a proof gallon is a gallon of spirits at 50% alcohol).
Breweries and wineries received similar reductions, though in their cases the cuts were largely reserved for small producers. Such excise taxes are paid on top of normal corporate taxes.
Without the extension, most alcoholic-beverage producers would have seen their excise taxes rise 400% starting Jan. 1, with the first payment due, in many cases, just two weeks later.
“Most distillers will breathe a sigh of relief when this passes,” said Margie Lehrman, chief executive of the American Craft Spirits Association, which lobbies on behalf of small distillers.
Still, the alcoholic-beverage industry was hoping for something more, like legislation making the tax cut permanent. This summer, the House Ways and Means Committee passed such a bill, and a bipartisan Senate task force endorsed a permanent cut as well.
The legislation that the House Ways and Means Committee passed in the summer has 326 co-sponsors, and an identical bill in the Senate has 73. The failure by Congress to move forward on such a popular item left many observers frustrated.
“It was nice to awaken to part of a Christmas present,” Lehrman said, “but they forgot to include the batteries.”
Many craft-beverage producers say that without the certainty that the cut will continue after Dec. 31, 2020, they cannot make long-term investments like buying stills, planting vineyards or hiring staff.
“One year is awesome for one year, but then what?” said Jaime Windon, chief executive and co-founder of Lyon Distilling, a small rum producer in St. Michaels, Maryland. “I’ll still probably cut back next year. I can’t go forward without that confidence.”
Lehrman added that she felt hopeful about getting Congress to make the cut permanent when it returns in 2020. But she also said that in a tumultuous election year, she and her fellow industry lobbyists had a lot of work to do.
“I will need to resole my shoes,” she said. “All those people I got to know on the Hill, I’m going to be seeing a lot more of them.”