Beer Tax Reform Bill Goes to Governor

The House gave final legislative approval Wednesday to legislation intended to eventually end Tennessee’s status of having the nation’s highest beer taxes.
The bill was approved 87-2 by the House on Wednesday without debate beyond sponsor Rep. Cameron Sexton, R-Crossville, describing it as “simply replacing an antiquated 1950s tax structure.”
The Senate approved SB422 last week, 30-1, under sponsorship of Sen. Brian Kelsey, R-Germantown. It now goes to Gov. Bill Haslam, who is expected to sign it.
The bill transforms Tennessee’s 17 percent tax on beer at the wholesale level to a flat-rate tax of $35.60 per barrel.

Passage follows a public relations and lobbying campaign by the Tennessee Malt Beverage Association that included “Fix the Beer Tax” events at pubs and microbreweries. A couple of craft beer makers produced special brews to show support for the bill, including, for example, Calfkiller Brewery’s “The Beacon: A Tennessee High Tax Ale.”
Tennessee currently has the highest overall beer taxes in the United States, according to Rich Foge, executive director of the association, because the present 17 percent wholesale tax has been rising for decades as the price of beer rises.
By converting to a volume-based tax, Tennessee will retain its status having the the nation’s highest beer tax, but should eventually lose that ranking when other state beer taxes rise, according to Foge.
The $35.60 per barrel figure – there are 31 gallons in a barrel of beer – includes a rough projection of growth in the 17 percent wholesale tax for two years, according to Foge and Chad Jenkins, deputy executive director of the Tennessee Municipal League, which represents city governments.
Most revenue from the wholesale tax goes to local governments. The TML went along with the arrangement and local governments will actually gain almost $14 million collectively in new revenue in the first year with the new law in effect, according to calculations of the legislature’s Fiscal Review Committee staff. Local governments received about $127 million from the tax last year.
In the long term, Jenkins said, cities and counties will be losing their growth money attributable to beer price increases, but can still see growth if beer sales volume increases. Beer is also subject to the state and local sales tax, which is based on price and will continue to increase as prices increase.
Foge says the new system will also benefit craft beer brands and microbreweries, which typically charge a higher price for their products and thus have been paying higher taxes. With a volume-based tax, their products will be paying the same flat rate as lower cost brews. According to the Malt Beverage Association, the tax on a gallon of standard brand beer is about $1.37 per gallon while the tax on craft beers and imports comes to about $1.86 per gallon.
“This bill will increase jobs in the brewing industry and help consumers by leading to a better selection at lower prices,” Kelsey declared in Senate debate, contending the lower prices will result from lower taxes on craft beers and products produced by microbreweries.
According to the Malt Beverage Association, beer will still be taxed at a higher rate than wine. The tax on wine is $1.21 per gallon.

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