A tax relief law for distilleries, set to expire at the end of 2019, was renewed for 2020. For Panther Distillery in Osakis, it wasn’t a huge cause for concern. However, for Ida Graves Distillery in Alexandria, it could’ve meant the difference between existing and not existing.
Federal excise tax relief for small distillers included in the $1.5 trillion tax reform bill in 2017 was set to expire at the end of 2019.
Excise taxes are taxes on specific goods, such as tobacco and alcohol, and paid for upfront by businesses and indirectly by consumers.
If it was not renewed, distillers could’ve seen their excise taxes multiply by five, which could’ve brought back growth the industry had over the past two years.
Distilleries have been starting up across Minnesota since the Surly Bill passed in 2011, drastically lowering the distiller’s license fee. Thirty-three distilleries were operating in the state as of 2018.
Noticing that small distillers were paying more in excise taxes than small breweries or wineries, the alcohol industry pushed for a tiered excise tax system. Instead of having to pay $13.50 per proof-gallon, the tax would only be $2.70 per proof-gallon for the first 100,000 gallons sold, according to the American Distilling Institute.
Fortunately for distillers, the relief was extended and now goes until the end of 2020. For Ida Graves Distillery in Alexandria, this was great news.
The distillery started selling products in July 2019, so at only six months old, the business has been greatly affected by the federal excise tax relief. Especially since the business is distribution-only without a public tasting room, the business solely relies on revenue from product sales. Part of the reason why the business is even existing now is because of the relief, said Brock Berglund, co-founder and co-owner of Ida Graves.
It would’ve been difficult for he and his wife, Anna Wilson, the other co-founder and co-owner, to make money without the tax relief.
“We didn't really know a world with the higher tax,” Berglund said. “It would’ve had a significant impact on our profitability because we are in start-up mode.”
Berglund said it would’ve been nice to make the tax relief permanent. “It’s really hard to grow when you get a 400% tax increase on just a product that you make and not including income tax or sales and use tax.”
With the renewed tax relief, in 2020 the business plans to better establish itself in the market by distributing products to more stores and gives space to plan for a possible non-renewal in 2021.
Additionally, Ida Graves Distillery may hire its first part-time employee and may have a cocktail room in the future. Because of the tax relief, saving up enough money to open the cocktail room may happen quicker.
While Panther Distillery in Osakis has a bit different story of how it was affected by the excise tax relief, Brett Grinager said it’s always a concern when the tax rate changes.
“It was definitely on our radar; we needed to be prepared to be paying more than we would be used to in the previous two years,” said Grinager, the general manager at Panther Distillery. “But it’s kind of like when something’s on sale, you take advantage of it as long as you can, but knowing that it probably isn’t going to last forever.”
The distillery has been in operation since 2012 so it had five years of selling products at the elevated rate before the tax was reduced. Hearing the tax reduction was expiring was not shocking, Grinager said.
The company had planned for the reduction to not be extended, and was prepared to pay more taxes, so it wouldn’t have been hurt, Grinager said. No pricing changes had been made.
Grinager said the tax reduction did what it was meant to do and gave small distilleries the chance to grow. Panther Distillery had increased revenue without having to change prices of products. The extra revenue was invested back into the company to grow products and market share.
“At some point, they probably won’t keep passing this extension,” Grinager said.
“It’s not certain and it’s not permanent,” Berglund said. “If nothing is done, everybody will face the same situation next December.”