Brewer: Bills could reduce tax, a barrier to the market
Hawaii’s small producers of beer, liquor and wine pay some of the highest alcohol taxes in the nation, all while under tight production limits.
That may change, as state lawmakers consider bills that would reduce state taxes by about 350 percent and could increase barrel limits twofold for small craft producer licenses.
Both the Senate and the House held hearings this week on the bills at the state Capitol with alcohol producers, including Maui Brewing Co. – which purports to be the largest brewery in Hawaii – supporting the measures.
“Collectively, Hawaii’s local brewers account for less than 2 percent of beer sold in Hawaii,” said Garrett Marrero, owner of the Maui company, in written testimony. “The tax provision as proposed results in a very small, almost insignificant decrease in the amount collected by state taxes. We need to view this as an investment in job creation and supporting Hawaii manufacturing.”
Current state alcohol taxes are 92 cents per gallon on nondraft beer, 53 cents on draft beer, $1.38 for still wine, $2.12 for sparking wine and $5.98 for distilled spirits.
Both bills call for combining draft and nondraft beer categories for small breweries and reducing the tax to 23 cents per gallon. Also, still and sparkling wine produced by small wineries would be reduced to 59 cents a gallon and distilled spirits by small manufacturers to $2.57.
Exactly what defines a small brewery or winery has not yet been determined in the bills.
“The whole idea behind the bills is that it really gives a way for smaller brewers to get started because they’ve been taxed out of the market,” Marrero said Thursday. “It’s been a state-issued barrier to the market, and I think the state realizes that.”
Marrero, who founded Maui Brewing Co. with his wife, Melanie, in 2005, said that he pays more than $2 in taxes per case of beer in Hawaii, in California, he pays about 45 cents.
“The state taxation in Hawaii is so high that we can ship our beer and pay taxes to the Western states for less than just the tax in Hawaii,” he said, adding that the charge is even more burdensome when adding federal and state general excise taxes.
While Marrero is fighting for lower taxes, he also is hoping legislators will increase barrel limits for brewpub licenses.
The Valley Isle company, which has a brew house in Lahaina and a brewpub in Kahana, produces a little more than 22,000 barrels of beer a year – under the 30,000 limit for current brewpub licenses.
However, the brewery expects to produce about 40,000 barrels annually when its plant, currently under construction at the Maui Research & Technology Park in Kihei, opens possibly in May or June.
“It’s great; the concrete’s been poured and the walls are up,” General Manager Tony Ren said of the planned 42,000-square-foot building.
The South Maui location, which sits on about 5.3 acres, will have production and tasting rooms, as well as a brewpub that will be built next spring.
West Maui state Rep. Angus McKelvey has proposed increasing the barrel limit to 60,000 for brewpubs.
“Our biggest problem we have right now is meeting demand,” Ren said. “Our market share has continued to expand and our product has gained a following, especially on the Mainland.”
Marrero acknowledged that critics of the tax bill believe the lost state taxes will go back into the pockets and bank accounts of business owners like him. He countered that the money will go “back into the business.”
“In our case, we spent almost $18 million for the (Kihei) facility, so this tax benefit would net us less than a few hundred thousand dollars,” he said. “That doesn’t even cover a quarter of a year’s loan payments. It’s more like two months’ worth.
“Whereas you have smaller breweries like Big Island Brewhaus in Waimea . . . which could use their (tax savings) to buy another tank or two to double their production.”
Marrero, who has become the “de facto craft beer spokesman” in Hawaii, said that the reduced taxes would “most importantly” provide more local jobs. Maui Brewing Co. has 67 employees and plans to triple or even quadruple that number in the next few years, he said.
“These employees live in Hawaii, raise their children here, pay taxes and contribute to the community,” Marrero said. “Forty-one employees are full-time employees with family-level wages, insurance benefits including health, life insurance and 401(k). We currently match contributions to 401(k), and we have implemented a profit-sharing plan as we believe in employee appreciation. We simply would not be where we are without our staff.”
Not everyone supports the bills. McKelvey said that large brewers, such as Anheuser-Busch, claim that the bill is unconstitutional and could impede commerce between states by favoring one group over others.
Sen. Roz Baker, who represents West and South Maui, and McKelvey are the sponsors of the small brewery tax bills.
“Maui Brewing Company is the example of the great local companies we want, putting every penny back in the company and hiring locally,” said McKelvey.
* Chris Sugidono can be reached at firstname.lastname@example.org.