Washington Beer Tax? I Got an Uncle Lives in Taxes

The current flap over beer taxes in Washington state reminds me of the old Marx Brothers quip having to do with taxes...or something. "Hey, I got an uncle lives in Taxes...Dollars, Taxes." That's funny. What's happening in Washington isn't.

Nah, I'm talking about taxes, money, dollars

This mess has been discussed at length in the beer community. In 2010, the Washington Leg implemented a sort of sin tax. It affected candy, pop, bottled water, beer and even some professional occupations. The idea was to close a $2.8 billion budget hole. The excise tax on beer jumped from 26 to 76 cents per gallon. This was supposed to be a temporary tax, set to expire on June 30, 2013. Naturally.

To insulate the state's craft brewers, the Leg exempted them from the tax. Brewers selling more than 60,000 barrels a year were stuck paying it; little guys weren't. Since that time, the big guys have been shelling out $23.58 per 31-gallon barrel. Small brewers have been paying $4.78.

A couple of weeks back, Gov. Jay Inslee announced that he wants to make the beer tax permanent. Worse, he wants to remove the exemption for craft brewers. The folks in Olympia evidently see this as an easy way out of the state's continued financial problems in a woeful economy.

Part of the issue here is that the tax on beer is about all that's left of the 2010 tax package. The soft drink companies spent $16 million to pass an initiative that wiped out the tax on soda and water. The beer industry likely would have done the same thing, but they were busy trying to scuttle the liquor privatization initiative...which passed with disastrous results for Washington consumers. But never mind. That's another messy story.

A couple more things about the beer tax:

1. First, it will apply to all beer sold in Washington. It will certainly cut into the profit margins of in-state craft brewers. Beer from states like Oregon, where the per barrel tax is low (8 cents per gallon, $2.48 per barrel) will be taxed at the higher rate when sold in Washington. Distributors will pay the tax, which will be passed on to consumers in the form of higher prices.
   
   
2. Second, big guys won't feel the impact of this tax. That's because they spread their tax burden around. Since tax rates vary around the country, the big guys simply suck it up and subsidize sales in states with high taxes with the extra money they make in low tax states. That's why Washingtonians haven't seen a spike in macro prices since 2010...and likely won't see one if Inslee gets his way.

Make no mistake, this proposal is bad news. It will cripple the craft beer industry in Washington if it happens. Most small breweries are nothing more than small businesses that cannot absorb this kind of financial hit. Jobs will be lost. Breweries will close. It's no wonder people connected to the industry in Washington are hysterical. Any Oregon governor who tried to pull something like this would be run out of the state on a rail.

Stick around...it's early

Washington craft beer brings $4.3 billion into the state annually. New breweries have been popping up all over the place at a time when there aren't a lot of bright spots in the economy. It's almost unfathomable that state leaders would consider wounding this industry. At least one publication thinks Washington state has the most regressive tax system in the country. Yikes!

Washington craft brewers are wondering how this happened. They're thinking they've never been so insulted. Hey, stick around...it's early.

State excise tax rates on beer are here.