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Craft breweries are an industry worth saving

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According to the Beer Institute, taxes are the single most expensive ingredient in a glass of beer, costing more than labor and raw materials combined.

Annually, The Tax Foundation ranks beer excise tax rates by state. Tax treatment of beer varies widely across America, ranging from a low of $0.02 per gallon in Wyoming to a high of $1.17 per gallon in Tennessee.

So where does New Mexico rank? At $0.41 per gallon, the state of New Mexico has the 14th highest state beer excise tax in America.

Here’s why our high ranking should be of concern to every New Mexican. Recently, the owner of the fastest growing craft brewing company in New Mexico told me that he has plans to move future production expansion to the tax friendlier border states of Colorado and Arizona. Arizona ranks 35th highest, at $0.16 per gallon. And Colorado ranks 46th highest, at $0.08 per gallon.

Gee, I wonder if Golden, Colo., beer giant Coors had any influence on state legislators to enact a lower excise tax? Further, is it any wonder that the state of Missouri, home of Budweiser, ranks 49th, at $0.06 per gallon?

We don’t have any mega-breweries located in New Mexico with high-paid lobbyists to leverage the beer excise tax down politically, but we do have an incredibly fast-growing, nationally-recognized craft-brew scene that is creating good tax revenue and good jobs in New Mexico.

According to the Brewers Association, the New Mexico craft beer industry’s direct and total economic contribution (brewing, distributing and retail) in New Mexico exceeds 10,000 jobs, having a $265 million economic impact on the state.

More importantly, these craft brewing jobs are not McJobs. They are highly-skilled manufacturing jobs.

Workers learn how to fix and operate sophisticated brewing equipment that produce not just services, but physical products for on-premise consumption – or in cans and bottles for retail distribution.

Making beer is a real craft. Working at McDonald’s isn’t.

Many of the more than 30 craft breweries in New Mexico that I talk to say they are growing between 20 and 30 percent every year. The craft brew business in America is booming.

In the beer business, growth means investing your profits back into capital equipment to increase production capacity and that is very expensive. Especially to nano- and micro-breweries that are using their own cash to grow.

This is important, because, after all, in the long run it’s capital investment that creates jobs more than any other factor.

The bottom-line is that the high beer excise tax in New Mexico siphons off cash flow that could be used for capital equipment investment — hot water tanks, boil kettles and fermenters. That discourages beer production in New Mexico.

In New Mexico, the beer excise tax is a progressive tax based on production levels. The more beer you make the higher excise tax rate you pay.

For example, a New Mexican brewery is taxed $0.08 per gallon up to 10,000 barrels of output. Between 10,000 and 15,000 barrels the tax rate rises to $0.28 per gallon. Over 15,000 barrels the tax rate rises further to $0.43 per gallon.

This makes no economic sense at all.

This taxation scheme is an out-and-out lien on production. On profits. On capital investment. On job creation.

At the very least, the beer excise tax ought to be a flat rate tax. Whether a brewery produces 1,000 barrels a year or one million, it’s wrong for a brewery to be progressively penalized for being successful.

I for one do not wish to see our great entrepreneurial New Mexican craft breweries take their business and jobs to Arizona or Colorado solely for tax reasons. I hope New Mexican lawmakers feel the same way I do and introduce legislation soon to lower the beer excise tax rate in New Mexico and keep the craft beer jobs in New Mexico.

If they do, this is one craft-brew lover that will happily buy the Roundhouse a round of fresh New Mexican craft beer and give a toast to jobs kept in New Mexico.

Thomas Molitor is co-host of The Spirits of New Mexico on KIVA 1600 AM and 95.9 FM on Saturdays at 5 p.m.

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