A statewide Fix the Beer Tax campaign gained momentum in Knoxville Friday night as lawmakers, brewery owners, distributing company representatives, and beer enthusiasts rallied behind a bill that would stop the wholesale beer tax from continuing to rise.
At 17 percent, Tennessee has the highest beer tax in the country. The wholesale tax has been a law in the books for over 50 years, but as the price of beer continues to rise, industry leaders are calling for change.
"The numbers are just very hard to justify. And if that trend continues, it could really be devastating to the state of Tennessee," said Jeff Knight, owner of General Manager of Cherokee Distributing Company.
The money generated from the wholesale tax is pumped back into local governments, and Knight said across the state, revenue has risen 34 percent over the last ten years. Knight said that is a stark contrast to the decrease in beer consumption, which decreased five percent. As prices continue to rise, distributors have been paying more, affecting breweries that sell to distributors, and bars and liquor stores that buy from the distributors.
"You have these customers that are going across state line," said Knight. "Secondly, with the tax being so high, it prohibits a lot of brewers from wanting to come to the state."
Knight said the competition among other states is high, and with taxes high, companies are choosing to open up shop in other locations to avoid the cost.
Friday, Knight joined the rally at Barley's in Old City, pushing for the changes outlined in The beer Tax Reform Act of 2013, which was filed January 29th by Representative Sexton (R-Crossville) and Senator Kelsey (R-Germantown).
The bill would calculate the tax on volume, instead of price.
"We're not reducing revenue. What we're trying to do is say 'hey, ok, if the price of beer goes up, we don't want the tax to be reflected'," said Adam Palmer, owner of Sawworks in Knoxville.
Palmer said the current system hurts craft beer breweries, who pay more for premium ingredients and thus sell beer at a higher price.
"If we're selling a six pack at $8.99, the tax adds up higher than what domestic manufacturers have to pay for six packs selling at $6.99 or $7.99," explained Palmer.
Under The Beer Tax Reform Act of 2013 , the price would not matter. Instead, the companies would pay the same tax , per barrel.
In 2012, Knight said the 17% wholesale tax generated $125 million in revenue for the state, which equates to roughly $34 a barrel. The proposed bill would use $34 as the flat tax per barrel, so the state would not lose money.
"The price of beer could go up in two months and now we have to make up that margin somehow or we simply lose out on that margin. So gain, we're back to struggling to make money to keep the doors open," said Palmer. "The change would give us comfort and help us plan ahead, and know what to expect."
Palmer said Tennessee and Kentucky are the only states in the country that do not use a volume-based wholesale tax method.
Knight said the move would be a great step for the economy, but the set price of $34 would still be significantly higher than most states.
"Even at $34 a barrel, we will continue to be the highest taxed in the country. And the big concern is when you lose business to Virginia, since Virginia's tax is roughly 9 dollars a barrel. So right off the bat we're very much at a disadvantage," said Knight.
The statewide Fix the Beer Tax campaign launched January 30th in Nashville and rallied in Memphis on February 8th.
For more information, visit http://www.fixthebeertax.com