By Zach Howard
SOUTH DEERFIELD, Massachusetts (Reuters) - Help may be on tap for independent beer brewers, who say a tax break could keep their businesses from running dry.
A new congressional measure would cut taxes for the nearly 1,700 small craft breweries that pump out far fewer barrels of suds than do the multinational beer giants.
Massachusetts Democratic Senator John Kerry and Idaho Republican Senator Mike Crapo this month introduced the Brewer's Employment and Excise Relief Act, which would halve the excise tax on a brewery's first 60,000 barrels and ease it on beer production above that amount as well.
A U.S. House of Representatives version is expected soon.
While the bill has bipartisan support, similar legislation has been tried at least twice before -- including in 2010 -- and failed to pass.
At Berkshire Brewing Co. in South Deerfield, Massachusetts, Gary Bogoff, one of the owners, said his small-batch beer company produced 18,000 barrels of such offerings as Steel Rail Ale and Lost Sailor I.P.A. last year.
Under the current tax rate, Berkshire owed the federal government $126,000, he said.
"If they go and cut that by half, that will give us an extra $63,000 to go out and invest into equipment, or marketing, or employment," said Bogoff. "For a small company, that's certainly a found little treasure."
The change could save craft beer makers up to $47 million annually, say backers. It would cut the excise tax on the first 60,000 barrels to $3.50 per barrel, from $7 now.
Those producing more than that would see the rate fall to $16 per barrel from $18.
The government now considers only brewers making fewer than two million barrels annually as craft producers. But the revision would lift that cap to six million barrels, allowing the top U.S. independent brewery, Boston Beer Co., maker of Sam Adams, to qualify for the tax relief.
More cash on hand may afford many breweries, who lack the reach of foreign-owned conglomerates like Anheuser-Busch InBev or SABMiller, a chance to grow their businesses amid rising demand for specialty beers.
Craft brewers can face pricey raw materials, such as hops, as well as limited distribution in stores and bars and a prevalence of cheaper, big-brand beer in the U.S. marketplace.
"Allowing bills like this would let small brewers compete a little bit more in a market access situation that isn't 100 percent to the benefit of small brewers," said Paul Gatza, director of the Brewers Association, in Boulder, Colorado.
For some factories and brew pubs, a tax cut could make the difference between profitability and closing up shop, he said.
Flying Bison Brewing Co. in Buffalo, New York struggled last year as the price of hops rocketed to $21 per pound. But by partnering with Matt Brewing Co. of Utica, it cut that cost by two-thirds and got other production efficiencies as well, said owner Tim Herzog.
"I don't know that we'll ever have an edge, because the part that always kills is what we pay for raw materials as brewing ingredients, as compared to a large brewery," he said. "But things are looking tremendously better now."
Flying Bison plans to make 3,600 barrels this year. One barrel equals 31 gallons of beer.
The excise tax on beer reflects the U.S. so-called sin tax levied on such items as alcohol, gasoline, cigarettes, gambling and firearms.
To date this measure has 23 Senate co-sponsors.
Some lawmakers oppose cutting excise taxes on alcohol. In 2009, the Senate Finance Committee mulled a proposal to raise the rate as part of healthcare reform.
Nearly 1,700 craft breweries are in operation now, the most on record since circa 1905, Gatza said.
But some have shut down because of financial troubles. About 55 beer-makers, mainly in the South, closed in 2009.
Small brewers provide about 100,000 U.S. jobs. With the proposed revision, some 4,200 more jobs could be added over five years, a recent Harvard University study found.
Craft beer's market niche has risen from 2.6 percent in 2001 to nearly 5 percent, while retail sales of craft brews hit about $7 billion in 2009, the latest available data showed.
(Editing by Ellen Wulfhorst)