By Mark Gillespie

December 21, 2019 – “As soon as the President signs, I will be raising my glass…I will not tell you what spirit’s is inside it, but it will be a darn good craft spirit.”

Margie Lehrman is the executive director of the American Craft Spirits Association, and she had to wait until late Friday night to raise that glass. President Donald Trump waited until then to sign into law the spending bill approved by Congress this week that includes a one-year extension of the break small-scale distillers receive on the federal excise tax they pay on their spirits. While the tax break was not set to expire until midnight on New Year’s Eve, the President signed the legislation just hours before federal agencies would have run out of money and would have had to begin shutting down operations.

The ACSA and other trade groups representing distillers, brewers, and winemakers spent the last two weeks on Capitol Hill mounting a full-court press on members of Congress to include at least a short-term extension in the “must-pass” spending bills that needed to be approved before the holiday recess. The original break was approved two years ago as part of tax reform legislation, and bills to make it permanent languished in both House and Senate committees despite widespread bipartisan support with 331 co-sponsors in the House and 73 in the Senate at last count. Negotiations to include an extension in the spending bill wound up being tied in with a series of other temporary tax breaks also needing to be renewed by the end of the year.

“The reality is one moment you are feeling pretty good, and the next moment based on the number of conversations, whether  it’s in the hall or in an office, you’re feeling maybe somewhat defeated,” Lehrman said in a telephone interview following the Senate vote Thursday. In addition to two spending bills, one covering defense spending and the remainder for the rest of the federal government, members of Congress also wanted to take action on the impeachment of President Trump and vote on the US-Mexico-Canada trade agreement before leaving Washington for the holidays. After the Senate vote, it was disclosed that White House officials had threatened a presidential veto of the spending bills unless lawmakers removed language requiring that aid to Ukraine be processed within a 45-day deadline. Had that veto occurred, it would have torpedoed the distillers’ tax break because Congress would not have been in session to take action until after it expired on December 31.

The legislation continues a break all distillers and spirits importers receive on the first 100,000 proof gallons of spirit removed from bond for sale each calendar year from $13.50 per proof gallon to $2.70. While the industry’s largest distillers do benefit from that break, many reach the threshold for paying the higher rate within weeks after the start of a new year. Most small-scale distillers never come close to reaching it, and the savings can be substantial. For a small distiller removing 10,000 proof gallons of spirits from bonded storage for sale over the course of a year, the tax savings would be $108,000. During 2018 and 2019, small-scale distillers have reinvested that savings into new equipment and hiring additional workers, and according to veteran distiller and consultant Mark Shilling, a number of distillers had planned to start laying off workers during the holidays had the extension not been approved.

Distilled Spirits Council CEO Chris Swonger praised Congress and President Trump for approving the temporary extension. “Because of the president’s support, more than 2,000 craft distillers no longer have to worry about waking up to a huge tax increase come January. Instead, they can focus on creating more jobs, buying more grains from farmers and stimulating local economies. We look forward to continuing to work with Congress and the administration on permanently lowering tax rates for craft distillers to give them certainty for growth and planning beyond 2020,” Swonger said in a statement. 

Links: American Craft Spirits Association | Distilled Spirits Council