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Wednesday, May 02, 2012

Tax Law Theater (More Entertaining Than You Expect)

It's been at least three months since we've had a beer tax post--far too long, don't you think?  Today's post is mainly just a recap of a fascinating little drama that played out when the importer Shelton Brothers (who bring you at least half the exceptional imports you drink regularly) decided to wade into New York's tax laws.  Like any lawsuit, the details are confusing and oblique, but essentially, Shelton Brothers managed to strike down a tax break the state gave to local small breweries.  Oregon has one of these, too, as I assume many states do.  So:
What does this mean for local brewers? Well, let’s take an in-state brewery like Captain Lawrence, whose new brewery has a capacity of about 40,000 barrels per year. Any of that beer sold in New York State is now subject to a new state excise tax rate of $4.34 per barrel. The previous rate? Zero. Captain Lawrence brewer Scott Vaccaro estimates on his site that the rule change will subject his beer to about $100,000 in added expense each year.

Guess how popular the lawsuit made Shelton Brothers?  Today they responded in BeerAdvocate, violating several rules of damage control with this beautiful lead-in:
We’ve heard that there's been a bit of banter about the recent New York Supreme Court ruling, mostly by ill-informed and emotionally fraught bloggers. (Keep those death threats coming, folks!) The facts here are really quite simple, though the legal and financial issues are apparently a bit difficult to comprehend. 

Yep, that's going to settle everyone right down.  (The whole piece is embroidered with inflammatory name-calling and thinly-veiled derision--and is therefore an excellent read.)  Their arguments are two: first, that the thing they really cared about was having to spend $150 a pop to register beer labels--from which small NY breweries were exempt--and second that the tax thing was unfair to them, so suck it, Empire Staters.  Seriously:
It really isn’t for us and other out-of-state brewers and importers to say whether New York should keep its beer taxes or do away with them, as long as we outlanders are not the only ones paying the taxes while New York brewers go tax-free.  If it really is a matter of whether Brooklyn’s head brewer gets a bonus or not, New York has to decide whether it wants to give him and his colleagues that money, or use it for other essential services, like education, fire and police protection, etc., etc...
If any New York brewers tell you now that they can’t raise their prices, even so slightly, because that will make their beer more expensive than beer from their small out-of-state competitors, that is nothing but an unwitting admission that up until now they’ve just been pocketing the savings they enjoy from that unfair tax exemption, rather than passing it along to consumers in the form of lower prices.
To which, you will be unsurprised to learn, there was plenty of reaction.  (PR note #1: if the response to your clarification is how jerky the clarification was, you've failed.)  One of the reactors was a Mr. Garrett Oliver of the Brooklyn Brewery,
I pointed out that I like many of the beers he imports, that I have helped promote them (as most of us have, in some way or other), and that I've poured them in numerous tastings. Why, I wondered - talking, as I thought I was, to him alone - would he want to do a thing like this? Even if his statements regarding tax law are correct (and I have no idea whether they are), many states have situations that in some way favor in-state brewers. Frankly, it never occurred to me to think of them as unfair. I will not go down this path and print bits and pieces of Mr. Shelton's response; I would, however, characterize it as inflammatory. Mr. Shelton and I have had many heated arguments, often to the wee hours, all over foreign capitols; it's a running joke at this point.
I have a strong sense that all the reactions are not yet in.

In conclusion: 1) many times sellers of good beer are not on the same team with regard to tax law and sometimes makers of good and bad beer are; 2) companies are fools not to pursue their own self-interest even when that may make them unpopular with rivals, but 3) since they function at least partly through the goodwill of their consumers, it would behoove them to at least look like they're not total jerks.

Good times.

7 comments:

Matthew DiTullo said...
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Matthew DiTullo said...
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Matthew DiTullo said...

The businesses won't be paying the extra taxes. The consumers will when product prices rise to cover the added expense.

Raising taxes on small businesses is plain old we-todd-it. It's a shame there is punishment for growth and success in America.

Pete Dunlop said...

Beer taxes should be the same, across the board. States could promote local breweries by slapping an added tax on beer that comes in from outside. Imported beer should be subject to the out-of-state tax and an import tariff. Let the Sheldon Bros put that in their pipe and smoke it.

Neither of these scenarios is likely, of course. Tariffs have largely been abandoned in this country. And the big brewers would fight any kind of tax that put national distribution at risk.

Rich Isaacs said...

I'd say that the text of the Shelton Brothers response is relatively correct but the tone is kind of obnoxious and overbearing. If they had stuck to a composed response, it may have done them better since it really is NY screwing over local breweries, not them. However, including personal communication is pretty poor form.

To be honest, though, it's not super surprising. Lots of people don't understand professional communication.

Alan said...

Excellent! Fun to read what is headed as a section on "Beer Taxes" and read the phrase "blogger thralls". No doubt a legal opinion of the highest order surrounds it. The "screw the beer buyer" take is also fun.

Boycott?

Patrick Emerson said...

Matthew,

I feel compelled to respond as an economics prof and say tax incidence is the same no matter whom you charge. The tax is born by both buyers and sellers and the result is higher prices and lower quantities.

Sorry, I could not help myself.

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