Proposed beer tax leaves bitter taste among brewers

SEATTLE -- The cans are stacked two stories high in the old white warehouse near Ballard's booming Leary Avenue; individual packages of four cans apiece, divided by pilsner and saison.

It's Ryan Hilliard's blood, sweat, and - well, hops - and although his fledgling brewery didn't turn a profit last year, it doesn't matter.

"It's been great. I've been really happy with how we've been received," Hilliard said. "Obviously we're in this to make money and make a living and exist, but as with any business, the first few years are pretty tight."

Despite the demand (the microbrewery will triple how much beer it produces this year), Hilliard says he is worried about the tight economics he faces, especially with a proposed beer tax being discussed in Olympia.

"If this beer tax had been in effect last year, it would've cost us an additional $30,000 in taxes," he said. "I don't think the company would've made it."

The 50 cent per-gallon tax - enacted in 2010, and scheduled to expire this year - was originally on Washington state brewers who produce more than 60,000 barrels a year. If Governor Jay Inslee's budget passes as proposed, the tax would extend permanently to every brewery in Washington state, from Hilliard's 6-person operation in Ballard, to the 80-employee Pike Brewing Company, one of the first craft breweries in the United States.

"I'm sure the governor has reasons to want to raise taxes, (but) he's definitely ill-advised," said Pike Brewing co-owner Charles Finkel. "I just shudder to think about what it could do."

"There are over 100 breweries that are less than a year old," he added. "It probably will put all of them out of business."

At a budget news conference in March, the governor said the measure could raise needed revenue for the state's schools. The tax could raise about $127.6 million dollars in a two-year period, according to the Office of Financial Management.

"I will be a proud participant in the continued payment or investment in our schools through this beautiful amber nectar of the gods," the governor joked.

"This is a tremendous industry. I love this industry," he continued, "but the fact of the matter is that everybody who enjoys beer ought to enjoy early education more."

Pike Brewing estimates that the proposal could cost them $180,000 each year in added taxes. The trickle-down effect would mean that a six-pack of their signature Pike Pale Ale would skyrocket from about $9 per package to $12, according to the company's accounting estimates, which they say take into account markups by distributors and retailers.

The governor's office disagrees with those numbers, a spokesman said, and estimates the tax impact to be closer to $.28 cents per six-pack, or about $.5 cents per bottle.

"The tax has been in place since 2010 and it does not appear to have damaged the industry," the governor's office said, in a statement. "Going forward, the governor has proposed treating all breweries equally and ending the exemption for small companies."

"It's a ripple effect all the way through; not to mention the consumer, who really bears the brunt of it," said co-owner Rose Ann Finkel. "It's going to affect your bottom line - negatively. I hope you've got deep pockets."

Finkel fears that smaller breweries could be forced to lay off staff or worse, and would be unable to compete with beer mega-companies who can keep their prices low, or with craft breweries from Oregon and Colorado, where taxes are cheaper.

Craft brewers plan to flood the capitol on Monday to lobby lawmakers on the tax issue.

"The trickle-down to the consumer is at least 25 to 50 cents per pint, but what it's actually going to do is give a competitive advantage to out-of-state breweries," said Mike Runion, co-founder of 7 Seas Brewing in Gig Harbor, who plans to head to Olympia Monday. "This will pretty much stunt all growth and probably put most of us out of business."