USA Craft Beverage Modernization and Tax Reform
Luis Ayala, Editor and Rum Consultant
Rum producers in and outside the USA have long criticized the subsidies received by their counterparts in Puerto Rico and in the USVI. These subsidies have been used by the respective producers to help position their brands at a retail price point beyond the reach of US mainland and foreign producers. Now, thanks to the Craft Beverage Modernization and Tax Reform, which was approved in December of 2017 and which was effective starting January 1 of this year, every US based distiller and importer is eligible for a reduced tax rate on the first 100,000 proof gallons produced each calendar year. The reduced tax provides an even bigger financial stimulus to craft distillers than the Excise Cover Over provides PR and USVI producers, at least for the initial volume stated in the reform.
While craft distillers rejoice, the time to plan how the savings are allocated is here: should they be applied towards the cost offered to distributors, such that the final MSRP is lowered or should the distributor cost remain the same and the tax savings be applied to R&D, additional barrel-aging, equipment and/or marketing?
The former approach would allow the brands to compete head-on with those from PR and USVI, but doing so would be a pyrrhic victory at best, as that price segment is not growing. Furthermore, there would be a sales volume ceiling after which the reduced rate would cease to exist, thus inevitably capping growth potential. The latter approach, if done properly, can allow for future growth that would be self-sustainable and otherwise un-reachable.
The craft industry is growing, High-End and Super-Premium segment growth is proof of this. Unless well-scrutinized financial numbers prove it, craft spirits should not be retailed at the same price as the leading brands.
Cheers,
Luis Ayala, Editor and Publisher