Changes Brewing 

Campaign to change Tennessee beer tax is in the works.

Tennessee's beer tax is the highest in the country, and distributors and brewers are rallying to change it.

Rich Foge, president of the Tennessee Malt Beverage Association and one of the organizers behind fixthebeertax.com, says the dubious honor stems from the state's unique wholesale tax, a 17 percent tax based on the price, not the volume, of beer sold to distributors.

"Every time the cost of doing business goes up and the price of beer goes up, the tax automatically goes up with it," Foge said. "We used to have the fourth-highest beer tax in the country, but in the past 10 years, we've passed Georgia, Alabama, and Alaska to be number one. And that's without the tax rate changing. That's because it grows with price increases, and there's really no end in sight."

But there could be an end if legislation proposed by Tennessee senator Brian Kelsey of Germantown passes this year. Kelsey's bill, which he says is revenue neutral, would convert the wholesale beer tax from a percentage of the wholesale price of a barrel of beer to a tax based purely on volume.

"I think this is the right thing to do, but any time you have a bill dealing with taxes, it's always somewhat of an uphill climb," Kelsey said. "But I feel very good about our chances of passing the bill this year."

Under the current tax system, a beer in Memphis is taxed four times: a federal beer excise tax of $18 a barrel, followed by a state beer excise tax of $4.29 a barrel, followed by the state wholesale tax of 17 percent on the price of that particular beer, and then the local sales tax of 9.25 percent.

Revenue from the wholesale tax goes to cities and counties across Tennessee. In 2011, Memphis received nearly $15 million dollars in revenue from the wholesale tax.

Because the tax is based on the price of the beer, it affects craft brewers and imported beers most acutely.

"Those craft beers are small batch-brewed, and a lot of them are Tennessee brewers or small regional brewers, so their prices are at the higher price point of beer. That 17 percent taxes their beer higher," Foge said. "So a craft beer or an import beer like a Heineken will have a higher tax on them than a Milwaukee's Best or a Natural Light."

And as craft breweries grow and take up a larger share of the beer industry, Tennessee's wholesale beer tax is coming into sharper focus.

"It tends to be a barrier to diversity of products in the market and penalize the small producer," Chuck Skypeck of Ghost River Brewing said. "It certainly keeps the market from growing. I know some brewers from out of state who won't send their beers into Tennessee because they'll be priced so high."

Linus Hall of Yazoo Brewing Company in Nashville agrees.

"We've been in business 10 years, and as soon as you try to grow your business in Tennessee, and you really start to be affected by this wholesale tax, you realize what a burden it is," Hall said. "You realize we're way in the stratosphere relative to other states."

Last year, Hall and other small brewers formed the Tennessee Craft Brewers Guild, and this year, they joined forces with the Tennessee Malt Beverage Association. They have also gotten a little help from what Hall calls "the big guys": lobbyists from Anheuser-Busch and MillerCoors.

"The big guys are interested in having a consistent tax they can figure in like in all the other states they do business in," Hall said. "It's kind of a rare instance where you have wholesalers and small brewers and big brewers all on the same page trying to fix this. This tax has been around since 1954, and, over time, it's been brought up to have it changed, but it just seemed like the big national brewers trying to get a tax break because there weren't any local breweries to put a face to the problem."

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