Local brewers say a proposed alcohol tax increase could devastate the state’s growing craft beer industry scene by raising state beer excise tax to the highest rate in the nation – more than 2½ times the second-highest.
“It would really just stop (the industry) dead in its tracks and it would probably cause a contraction of the industry,” said John Gozigian, executive director of the New Mexico Brewers Guild.
The proposal promoted by the group Alcohol Taxes Save Lives and Money calls for an across-the-board increase on alcohol excise tax on the wholesale level, including beer, wine and spirits. The group estimates it would boost state revenues by $154 million annually and help cover some of the public costs associated with excessive drinking, such as related police hours, court services and medical treatment.
Even at the higher rate, “it’s a minuscule fraction of what it should be,” said the group’s director, Peter De Benedittis.
The group has asked Gov. Susana Martinez to put the matter on call for a special legislative session, though her spokesman told the Journal earlier this month that she “isn’t going to raise taxes.”
Gozigian said members of the Brewers Guild are “very concerned” about the proposal, which could result in some paying 34 times more in taxes than they do today.
Rates vary depending on a brewery’s production volume, but New Mexico’s microbreweries currently pay 8 cents per gallon in state excise tax for the first 10,000 barrels sold. The proposed hike would raise that to $2.75, the equivalent of 25 cents per drink, according to the Alcohol Taxes group.
That means a brewery selling 4,000 barrels a year (or 124,000 gallons) would see its taxes jump from $9,920 to $341,000.
Microbreweries pay more if they sell more than 10,000 barrels. The proposal would tax the next 5,000 barrels’ worth at $2.95 per gallon, up from 28 cents. The beer tax rate for the largest producers would jump to $3.08 per gallon, up from 41 cents.
The state has about 60 breweries today, and only a few sell more than 10,000 barrels, Gozigian says.
According to a list compiled by the Federation for Tax Administrators, the U.S. median excise tax on beer is 20 cents per gallon. Tennessee has the highest rate, at $1.29 per gallon.
Should the state adopt such a tax increase, New Mexico breweries would have to determine how much of the increase they could absorb, but would likely have to pass some of it on to consumers, perhaps pricing themselves out of the market, Gozigian said. Though the increase would affect all beer sold in New Mexico, Gozigian said it might prompt consumers to simply switch to a lower-priced product.
“People will trade down. If you spend $9 on average per six-pack of beer, you’ll probably continue to spend $9,” he said. “Basically, we’re going to take New Mexico beer out of that purchaser’s price range and they’ll buy beer that’s not brewed in New Mexico.”
Jeff Erway, founder and president of Albuquerque’s La Cumbre Brewing Co., criticized the proposal in a letter to the editor published in Monday’s Journal, calling it “neo-Prohibitionist” and harmful to the state’s growing beer, wine and spirits producers.
The excise tax on spirits would increase to $7.24 per liter from $1.60. Wine taxes vary depending on the size of the producer. But a small winery would pay $1.79 per liter on its first 80,000 liters, up from the current rate of 10 cents.
“You will take a local product that is viewed as an affordable luxury and make it unaffordable to our already cash-strapped residents,” Erway wrote. “Instead of supporting local businesses, the consumer will be economically forced to support the very largest of producers who can afford to keep their prices and margins at rock bottom.”
Brian Lock of Santa Fe Brewing Co., the state’s largest craft beer maker, said in an interview that the proposal was “absolutely absurd.” Lock, who has 55 employees and is in the midst of a multimillion-dollar expansion project at his Santa Fe headquarters, said a tax increase might lead him to pour more resources into out-of-state advertising efforts, and marketing and sales personnel because product sold and shipped out of state is not subject to the excise tax.
“Then I avoid the excise tax. I would look at heavily investing in employees that are out of state, that live in out-of-state markets to push my brand because it’s a better use of my resources,” he said, noting that states with some of the most mature craft beer scenes have lower beer excise taxes. Colorado and Oregon each check in at 8 cents per gallon, according to the FTA.
But De Benedittis argues that the proposed rate is appropriate. He pointed to a report on the Centers for Disease Control and Prevention website that shows New Mexico had the nation’s highest percentage of alcohol-attributable deaths among those ages 20-64 from 2006 to 2010.
“We have the biggest problem. We need the biggest solution,” he said.