We have spent some time in class discussing the fraught regulatory environment for alcohol producers—and particularly, wineries—in the United States. After yesterday's Congressional theatrics, the federal government has slipped in some less-noticed tax breaks for craft brewers and winemakers.
The new tax plan provides two major concessions to the wine industry: i) it broadens the number of wineries eligible to receive tax credits, and ii) it raises the ABV threshold for excise taxes.
Under the current tax regime, wineries producing fewer than 250,000 gallons (c. 105,000 cases) of wine are eligible to receive a tax credit of up to $0.90 per gallon. The new plan raises this threshold to 750,000 gallons (c. 315,000 cases), with no phase-outs for eligibility (i.e., even producers with well in excess of 750,000 gallons will receive the credits for the first 750,000 gallons produced).
Another provision in the status quo tax regime levies excise taxes on wines with an ABV of greater than 14 percent. Industry advocates have argued that this threshold is too low for the current wine palette and production processes. They state that improved viticultural processes have "reduced crop size and opened up canopies", which has "increase[d] structure and flavor development, but... also sugar accumulation, which translated into over 14 percent alcohol". Currently, wines over the threshold are taxed at $0.50 per gallon more than those below. The new tax plan increases this threshold to 16 percent.
Additionally, the tax plan includes reduced excise taxes for craft breweries, which are discussed in this Politico article.
While the above amounts may seem minor, they add up. For a producer selling 600,000 gallons of 15 percent ABV wine, excise taxes would total $947,000, with no eligibility for tax credits. Under the new tax plan, excise taxes due would amount to only $642,000, with offsetting tax credits of $371,450, resulting in a net tax of $270,550. Tax savings of $642,000 in what we know is a low-margin business could be meaningful for a business selling ~252,000 cases of wine.
Perhaps we are seeing the beginning of congress going easier on the alcohol industry.
Forrest, thanks for your post. It remains to be seen whether the cost of wine will come down for consumers, or whether winemakers will reap the benefits in the form of increased profits. Grad students may have need of increased volumes of wine if the provision to tax tuition wavers that's part of the House version gets adopted...
ReplyDeleteBut I digress.
The other thing I became curious about after reading your post was the comment that the alcohol percentage in wines is increasing. Doing a little googling, I came across a useful wine folly article, which grouped wines by alcohol content (see below). Seems like most of my favorite varietals (Pinot Noir, Cab Sav, and Malbec) fall in the medium-high category. According to the author of this article, wines are increasingly alcohol these days because we've developed more resilient yeast! Yeast from the 1950s would die if alcohol levels exceeded 13.5% ABV, sometimes leading to a problem known as "stuck fermentation," where all the yeast died before converting all of the sugar into alcohol. With modern science, we've developed yeast that can survive alcohol levels as high as 16.5% ABV.
A different Men's Health article claims our dear friend Robert Parker is in part to blame! Parker generally prefers higher alcohol content wine relative to the higher acidity styles from back in the day. And, as discussed in class, his fame has allowed his palate to shape the industry: “As his reviews became more and more popular, and as retailers increasingly used scores to do their jobs for them, vintners started trying to hit that style with at least some of their offerings.”
http://winefolly.com/tutorial/the-lightest-to-the-strongest-wine/
https://www.menshealth.com/nutrition/why-alcohol-in-wine-increased
Great synopsis, Forrest. Will be interesting to see if these benefits to the wine and craft brewing world last in the final version of the bill.
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