Proposed tax cuts for small distilleries could mean big growth for Michigan’s spirit industry

Posted at 11:25 PM, Jun 01, 2015
and last updated 2015-06-01 23:25:29-04

GRAND RAPIDS, Mich. -- Tax cuts proposed at the federal level by U.S. Senator Gary Peters, D-Michigan, could prove to be a big boost for small-scale distillers in the state and across the country.

Peters and a bi-partisan group of senators is pushing to cut the federal excise tax on distilled spirits by 80 percent on the first 100,000 gallons they produce per year.

The tax would be reduced from $13.50 per proof gallon to $2.70 for the first 100,000 proof gallons produced in a year. That's big savings for small-scale, local startups like Long Road Distillers on Grand Rapids' West Side, which opened just last week.

“We’re not asking for any special favors here," said co-owner Kyle Van Strien. "We’re just trying to decrease that huge liability that we have so that we can support our local sources.”

For Van Strien and his team, the opening of the distillery is a dream nearly two years in the making. Long Road Distillers joins a growing list of distilleries across the state—which is now up to nearly 40—giving Michigan the third highest number of distilleries in the country.

“The craft distilling industry is a fast growing part of Michigan’s economy, stimulating our agriculture and tourism sectors as new distilleries open across the state," Peters said last month after the introduction of the proposed cuts. "But like many small businesses, craft distilleries often face significant challenges as they start and grow their businesses."

Long Road is on track to produce roughly 15,000 proof gallons in a year, Van Strien said. The proposed federal tax cuts could mean a savings of roughly $160,000 per year. The savings could mean an opportunity for further expansion, more hires, and effects that can extend well beyond the walls of the distillery.

“It all trickles down to all our suppliers too," Van Strien said, "where, if we’re able to increase production, we’re going to be supporting those farmers and all those suppliers.”

But beyond the savings, Van Strien said, the cuts would place distilleries on a more level playing field with beer and wine makers.

The average 'young' distillery produces 30,000 proof gallons in a year, which could mean a savings of up to $320,000 if the excise tax is reduced to $2.70 per proof gallon, Peters said. Estimates show the spirit industry adds roughly $400 million to Michigan's economy, and the industry employs more than 800,000 people nationwide.

Lawmakers in Washington are also weighing similar cuts for breweries with a bill called the Small Brew Act, which would reduce the federal beer excise tax small brewers pay. The cut would reduce excise tax rates to $3.50 on the first 60,000 barrels produced, and $16.00 on production between 60,001 and two million barrels.

The Brewers Association says the cuts would create more jobs in an industry which already employs more than 110,000 workers across the country. Michigan ranks fifth in the number of breweries in the country.