As I (Paul Kaspszak, MMBA Executive Director) see it, there is a large debate at the Capitol about the state budget and alcohol taxes.
Here is a recent editorial written by Mark Stutrud, President and Founder of Summit Brewing in St. Paul.
Like many businesses today, Summit Brewing Co. in St. Paul is facing a difficult time. With increasing costs and decreasing profit margins, the potential for a 144 percent increase in the Minnesota beer excise tax rate is alarming. Such an exorbitant tax increase would be a tremendous blow to brewing operations and the entire beer, wine and spirits industry in Minnesota.
Minnesotans already pay very high alcohol taxes. Our taxes on beer, wine and spirits are higher than in any surrounding state and in most other parts of the country. It costs more to have a beer, wine or cocktail in more than a dozen Minnesota cities than it does in New York City, Los Angeles or Miami.
Now imagine increasing the state excise tax by 144 percent.
This would turn a traditional beverage into a luxury and place an additional burden on consumers and every part of the liquor industry in Minnesota. Making our beer a luxury item is not what Summit Brewing stands for or believes is right for Minnesota. Beer is for people who appreciate a glass while watching a baseball game, sitting by the campfire or, as Gov. Tim Pawlenty pointed out, fishing.
Brewing on a small scale as we do at Summit is very expensive, which sadly is why so few Minnesota-based brewers remain. Summit's packaging costs are 22 percent. Labor and energy costs are 11 percent and 5 percent. Raw materials, including hops and malt, have increased from 11 percent in 2007 to 17 percent in 2009. This dramatic cost increase has hurt our business.
Although we have increased our wholesale price in the past two years, we simply cannot pass on all of our increased costs to consumers and remain competitive in the marketplace. Small breweries like Summit already have to price our products higher than large domestic brewers. If we were to increase our prices even more, there is a point at which our product becomes too expensive, and consumers will simply stop buying it.
The proposed legislation containing a 144 percent excise tax increase would mean a tax jump from $4.60 to $11.21 on every barrel of Summit beer, bringing the company's annual state excise taxes from $244,000 to $594,000. Our federal excise taxes are $924,000, which would bring our combined state and federal excise taxes for 2009 to $1.52 million on a sales base of $16 million.
This would represent almost 10 percent of the brewery's expenses, which we expect would eliminate our entire profit for 2009, 2010 and 2011. As a privately held firm moving toward employee ownership, that hurts. And after doubling our workforce to 50 employees over the past 10 years, our projected new growth and employment would decline.
Summit is just one story among hundreds that could be told about Minnesota-owned companies in the beer, wine and spirits industry. Along with the members of Minnesota's hospitality industry, we would face substantial business losses if the tax increase passes.
For instance, in communities that border Wisconsin, Iowa, and North and South Dakota, our retail alcohol taxes are already higher. Excessive alcohol taxes also will make it more difficult to attract national and regional convention business to Minnesota.
While some people have described the tax increase as a dime a drink, which sounds reasonable and affordable, there's markup on that dime at several points along the journey from the source of the beer to where it is consumed. So the extra dime at the brewer's dock is likely to grow with every transaction along the way.
Imposing new, outrageously high taxes on drinks is simply wrong. Wrong for small breweries like Summit trying to compete in a highly competitive market, wrong for all kinds of small businesses across Minnesota, and wrong for working Minnesotans who already pay high taxes.
I encourage other Minnesotans to join me in urging the Legislature to reject the very un-Minnesotan tax.
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