Oregon Wineries Cheer Senate Bill

Legislation in front of finance committee would reduce federal taxes on first 12,600 cases

by Peter Mitham
Sen. Ron Wyden has introduced the Craft Beverage Reform and Modernization Act of 2015.
Dundee, Ore.—Greater deductions and lower taxes are what wineries across the country will enjoy if a bill Sen. Ron Wyden of Oregon introduced in the Senate this month becomes law.

Wyden’s comprehensive craft beverage tax reform bill—known officially as the Craft Beverage Reform and Modernization Act of 2015—will also benefit craft breweries and distilleries, but wine producers in Wyden’s home state of Oregon, who had a hand in developing the bill, are particularly cheered.

Key provisions for wineries include allowing producers to claim production expenses for the year in which they’re incurred, rather than capitalizing them while the wines age in preparation for release and sale. Wyden’s bill also proposes modifying tax credit provisions to benefit wineries by as much as $120,000 a year.

“One of the biggest things is the proposal to allow wineries to expense production costs,” said Bill Sweat, principal of Winderlea Vineyard and Winery in Dundee, Ore., and a director of the Oregon Winegrowers Association, which supported Wyden’s development of the bill. “Right now, when I produce a case of wine, all the costs that go into that become costs of goods sold, so they come out of my (profit and loss), and they’re not recognized until I sell that bottle of wine, which could be two years later.”

Winderlea, for example, produces approximately 7,500 cases per year, but typically sells between 3,500 and 4,000 cases per year. This leaves the winery unable to claim expenses for nearly half of its production, squeezing cash flow. This also means that developing a library of past vintages an expensive prospect, as the cost of the library wines can’t be claimed until the wines are deemed to be sold or otherwise no longer part of the winery’s inventory.

“We have millions of dollars in inventory which we’re essentially financing, and which isn’t getting recognized until the year sold,” Sweat said.

An expanded tax credit for table wines will also benefit producers, reducing the excise taxes immediately owing on production.

“Every Oregon winery will benefit from an increased federal tax credit on the first 12,600 cases of wine,” Jana McKamey, director, government affairs and member relations for the Oregon Winegrowers Association explained to Wines & Vines. “Some wineries that have not been able to access any federal excise tax credits will now be able to do so if this proposal were to go through.”

McKamey estimated the benefit for larger wineries at upwards of $120,000, while a winery producing 5,000 cases per year would see excises taxes drop from $2,000 to $800 if Wyden’s bill passes—a 59% drop.

“We see benefits across our industry from this proposal, and that’s why we came out in support of it,” McKamey said.

Other industry organizations are studying the legislation, which follows a number of other initiatives in recent years to reform excise taxes on alcohol.

WineAmerica has made its members aware of the legislation, but it has not issued a formal statement toasting or panning it.

“We have been in touch with the senator's office about the wine provisions, and they want the industry’s input moving forward. We are not for or against (it) currently,” Michael Kaiser, director of public affairs for WineAmerica told Wines & Vines.

Similarly Josh McDonald, executive director of the Washington Wine Institute, said his organization is studying the proposal and soliciting feedback from its members.

“The Washington Wine Institute thanks Sen. Wyden for his efforts to bring all the commodities together to have this very important discussion,” he said. “We are discussing his proposal internally and will be working on this legislation with his office as well as our Washington state senators.”

The bill is currently before the Senate finance committee prior to returning to the Senate; if senators approve the bill, it will proceed to the U.S. House of Representatives for consideration. While there is no timeline, Sweat doesn’t consider the bill controversial.

On one hand it cuts taxes, which allows businesses to reinvest in their operations and grow, and on the other, a provision boosts funding for regulatory activities, ensuring adequate protections (for those concerned regarding the industry’s regulation).

“I think it will have an enormous amount of support,” Sweat said.

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