If Gov. Jim Justice has his way with eliminating the state’s personal income taxes, craft brewery owners may be crying in their beers – if not shutting down their operations and relocating out of state.
West Virginia lawmakers and Gov. Jim Justice have offered three separate and distinctly different bills to phase out personal income taxes in West Virginia, but only one of them – from the governor – is proposing additional “sin” taxes on the alcoholic beverage industry to help foot the bill.
Justice’s proposal, as currently written, would result in a 431 percent excise tax increase for the craft beverage industry to absorb – or pass on to their patrons. Such a tax would raise the beer barrel tax on each 31-gallon barrel from $5.50 to $29.25.
Local breweries say the increase would have a major negative impact on the state’s craft beer industry.
“Financially speaking, it would probably, if not put us out of business, it would kill jobs certainly,” said Jeff Edwards, co-owner of Free Folk Brewery in Fayetteville.
Edwards says the governor’s proposal is disappointing because it essentially targets the brewing industry.
“It’s a sin tax,” Edwards said. “It would basically discourage us from growing as a brewery.
“We are in a tourist area, whether people want to believe it or not,” Edwards said. “People coming here want to go to breweries. We are an outdoor activity state. People are coming here to go outside, and after they go outside, they want to have a craft beer – something that is made locally.”
Aaron Rote, co-owner of Short Story Brewing in Rivesville and President of the WV Craft Brewers Guild, says he’s hoping the language will be removed from the bill, as he believes the increase could make West Virginia the second highest tax rate in the country just behind Alaska
It would likely make West Virginia much higher than the national average.
Regionally, Kentucky’s tax rate is $2.50 per barrel, Ohio is $5.58, Pennsylvania is $2.60 and Maryland is $2.79.
Several breweries say they hope the attack on West Virginia’s alcoholic beverage industry will be removed from both proposals, as there isn’t enough money in their profits to take on this type of tax increase.
“This would have an immediate effect on our industry. I think it could be fatal to a few of our breweries,” Rote said. “We only have approximately 26 breweries in the state. Some of the breweries I have talked to said they would have to close or move to another state that has a more friendly tax.”
Craft beer breweries pay the tax the minute beer is produced, which is going to be difficult for some smaller breweries to do, according to Rote.
“We’ll have to significantly raise the cost of beer which will be put into the hands of the consumer. When you have a state where the average income is low, we’re already charging $5 to $6 for a craft beer, it’s already a lot to ask of a consumer.”
Rote says his fear is that the blame will be place on the breweries, and he wants the public to know if it goes into effect that it wasn’t the breweries who initiated the cost increase.
Bridge Brew Works Co-Owner Ken Linch agrees with Rote.
He says the tax “is really a tax on beer drinkers, because the cost will have to be passed on.”
We will have to pass the cost on because that amount that they’re talking about will essentially be all of our profit on a barrel of beer that goes into distribution,” said Linch. “It’s really aggravating that nobody from the state, or politicians or any of them consulted with any of us ahead of time on what the impact would be. That’s the first real insult to our business.”
Linch says the part that isn’t being taken into consideration when discussing taxing industries such as the craft beer industry is that these small businesses have a very small profit margin to begin with, so eating the cost will be near impossible to do.
According to the most recent data available by the Brewers Association, craft breweries throughout West Virginia had a $289 million impact on the economy in 2019 with 28 craft breweries currently, producing a combined total of 22,964 barrels of beer annually in West Virginia.
A request to Governor Justice’s office for comment was not returned.