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General Category => Going Pro => Topic started by: narvin on February 22, 2015, 05:03:42 pm

Title: The most expensive ingredient in beer...
Post by: narvin on February 22, 2015, 05:03:42 pm
http://blogs.reuters.com/great-debate/2015/02/19/beer-may-be-about-to-get-cheaper/

I'm all for the lowering of excise taxes for small brewers, but these numbers don't seem to add up.  Any pros have a comment?
Title: Re: The most expensive ingredient in beer...
Post by: majorvices on February 22, 2015, 08:30:04 pm
Taxes really do add up to around 40% of the total cost of beer production. It's hard to fathom but once the feds and the state have taken their chunk that's about what it adds up to.
Title: Re: The most expensive ingredient in beer...
Post by: narvin on February 22, 2015, 10:22:53 pm
Are you talking about business taxes in general, or just the beer specific taxes?  $7 a barrel plus state alcohol tax seems like it would be way less than 40%.

Edit: I guess if you count sales taxes, which are levied on the sale price and not the cost of production, it would add a lot to the overall "cost" of the beer compared to raw materials.  But that seems like a silly comparison since it's going to be directly proportional to revenue for the brewery.
Title: Re: The most expensive ingredient in beer...
Post by: majorvices on February 23, 2015, 12:34:01 am
Keep in mind we are still paying taxes on ingredients we buy. $7 a bbl plus the state taxes end up being a huge chunk when you add that ontop on everything else.
Title: Re: The most expensive ingredient in beer...
Post by: Stevie on February 23, 2015, 01:10:35 am

Keep in mind we are still paying taxes on ingredients we buy. $7 a bbl plus the state taxes end up being a huge chunk when you add that ontop on everything else.
You pay taxes on malt, hops, and yeast? I've always thought they were exempt as food.
Title: Re: The most expensive ingredient in beer...
Post by: anthony on February 23, 2015, 04:20:39 am
For us, federal and state excise taxes make up about 19% of our cost on an average beer. As you get larger and you take advantage of economies of scale AND you pay the larger tax rate, I could easily see the cost being 40% of the costs.

Taxes really become crazy when you start looking at labor costs...
Title: Re: The most expensive ingredient in beer...
Post by: majorvices on February 23, 2015, 12:44:07 pm

Keep in mind we are still paying taxes on ingredients we buy. $7 a bbl plus the state taxes end up being a huge chunk when you add that ontop on everything else.
You pay taxes on malt, hops, and yeast? I've always thought they were exempt as food.

I'll have to double check that but I always thought that the tax exempt status was only on the state level. In AL we pay 8% sales tax on everything, including food. In PA there was no tax on food.

I do not keep the books at YHB but we had kicked around the numbers before on how much taxes we paid over all in a meeting a couple times and the numbers were quite painful. By the time a pint is pulled the feds and the state have taken quite a chunk. I've seen it worked out before and it is close to 40%.

So perhaps it is not 40% on our level but it does end up being close to that on the consumer level.

I doubt you would see the price of beer drop very much on the consumer level. But it may make it possible for some competitive price leveraging.
Title: Re: The most expensive ingredient in beer...
Post by: narvin on February 23, 2015, 01:23:29 pm
For us, federal and state excise taxes make up about 19% of our cost on an average beer. As you get larger and you take advantage of economies of scale AND you pay the larger tax rate, I could easily see the cost being 40% of the costs.

Taxes really become crazy when you start looking at labor costs...

19% of your cost sounds reasonable.  The thing that seemed a little crazy was the claim that 40% of retail price was taxes.  I guess I can see this in the same sense that 40% of my "costs" are taxes, ignoring the fact that removing taxes would not necessarily mean I would still make the same salary and also not have to pay for things like private pirate insurance and personally security and other things required to keep society going.
Title: Re: The most expensive ingredient in beer...
Post by: Jimmy K on February 23, 2015, 02:20:26 pm
Since it said that 40% of the retail cost is Federal, State, and Local taxes, I would assume that includes beer and non-beer related taxes, along with liquor licensing fees for the retailer, sales tax on final sale, business income taxes for everybody, etc.
 
Not to say that it isn't also 40% of the cost of producing beer. Taxes on beer production would be a percentage of total taxes, but costs of beer production is also a percentage of the retail price.
Title: Re: The most expensive ingredient in beer...
Post by: Thirsty_Monk on February 23, 2015, 02:35:47 pm
Lies, damn lies and statistics. Twist the number as it sounds good.

You should not pay sales taxes on raw material because it will get transform into a new product. Sales tax is paid only at the final sale point.

Cost of your beer can be calculated multiple ways for this statistical discoveries. Is it just raw material? RM+ labor? RM + Labor + utilities and rent? How about amortization on equipment?

So all these percentage numbers should be taken only as educated question.
Title: Re: The most expensive ingredient in beer...
Post by: majorvices on February 23, 2015, 03:14:26 pm
I'm pretty sure there is some taxes paid somewhere on that pallet of German Pilsner malt. There is tax on imports, there are taxes on transport costs. There are all kinds of taxes wrapped in that sack of pils.
Title: Re: The most expensive ingredient in beer...
Post by: micsager on February 25, 2015, 04:14:20 pm
Keep in mind we are still paying taxes on ingredients we buy. $7 a bbl plus the state taxes end up being a huge chunk when you add that ontop on everything else.

In Washington State, we do NOT pay sales tax on ingredients.  Anything that actually goes in the beer is taxed when the beer is sold to the customer.  Grains, hops, yeast, irish moss, other adjucts, even the Co2 I use to carbonate is all sold to me without the imposition of sales tax.  Co2, get's a little weird, because the Co2 for pushing beer, or purging tanks is certainly taxable.  Fed and state beer taxes are about 3% of sales price.  We're small enough we pay no business taxes.  There may be taxes on these products further back in the supply chain that I am unaware of.   
Title: Re: The most expensive ingredient in beer...
Post by: majorvices on February 25, 2015, 06:15:18 pm
Keep in mind we are still paying taxes on ingredients we buy. $7 a bbl plus the state taxes end up being a huge chunk when you add that ontop on everything else.

In Washington State, we do NOT pay sales tax on ingredients.  Anything that actually goes in the beer is taxed when the beer is sold to the customer.  Grains, hops, yeast, irish moss, other adjucts, even the Co2 I use to carbonate is all sold to me without the imposition of sales tax.  Co2, get's a little weird, because the Co2 for pushing beer, or purging tanks is certainly taxable.  Fed and state beer taxes are about 3% of sales price.  We're small enough we pay no business taxes.  There may be taxes on these products further back in the supply chain that I am unaware of.

But there are stiil import and tarif taxes that the malt companies pay, right?
Title: Re: The most expensive ingredient in beer...
Post by: Stevie on February 25, 2015, 07:03:57 pm
But there are stiil import and tarif taxes that the malt companies pay, right?
I imagine you are right, but that would be factored into the price of the malt. This is partially why so many "foreign" cars are being built in the US, Mexico and Canada.
Title: Re: The most expensive ingredient in beer...
Post by: micsager on February 25, 2015, 11:19:00 pm
I get what you're saying Keith, but I don't think it's right to consider that a "tax" on a commercial brewery.  Home-brewers and distillers pay that tax as well.  In fact as noted above, we pay that as a part of the purchase price in everything from German Pislner Malt to an iPhone. 

And don't even get me started about the taxes on gasoline that are hidden in the purchase price.  Should we include that as a brewery tax as well? 
Title: Re: The most expensive ingredient in beer...
Post by: duboman on February 25, 2015, 11:37:26 pm

Keep in mind we are still paying taxes on ingredients we buy. $7 a bbl plus the state taxes end up being a huge chunk when you add that ontop on everything else.
You pay taxes on malt, hops, and yeast? I've always thought they were exempt as food.
Here in Chicago we pay taxes on everything, state, local and federal, I would love to live somewhere tax was exempt on food and food products, 10% is the minimum on most goods, food is 8 and alcohol and gas, OMG, its ridiculous and our state is still bankrupt!
Title: Re: The most expensive ingredient in beer...
Post by: brewday on February 25, 2015, 11:45:31 pm

Keep in mind we are still paying taxes on ingredients we buy. $7 a bbl plus the state taxes end up being a huge chunk when you add that ontop on everything else.
You pay taxes on malt, hops, and yeast? I've always thought they were exempt as food.
Here in Chicago we pay taxes on everything, state, local and federal, I would love to live somewhere tax was exempt on food and food products, 10% is the minimum on most goods, food is 8 and alcohol and gas, OMG, its ridiculous and our state is still bankrupt!

+1.10
Title: Re: The most expensive ingredient in beer...
Post by: narvin on February 26, 2015, 02:16:07 am
I'm not sure about every state, but in most a business purchasing raw ingredients for resale in a manufactured product is exempt from sales tax.
Title: Re: The most expensive ingredient in beer...
Post by: majorvices on February 26, 2015, 12:42:15 pm


And don't even get me started about the taxes on gasoline that are hidden in the purchase price.  Should we include that as a brewery tax as well?

Hell, why not.
Title: Re: The most expensive ingredient in beer...
Post by: anthony on February 26, 2015, 03:16:12 pm
I'm not sure about every state, but in most a business purchasing raw ingredients for resale in a manufactured product is exempt from sales tax.

In Illinois, you simply provide a CRT-61 (http://www.revenue.state.il.us/taxforms/Sales/CRT-61.pdf) to the vendor/store/supplier/whatever.
Title: Re: The most expensive ingredient in beer...
Post by: Slowbrew on February 26, 2015, 03:33:23 pm


And don't even get me started about the taxes on gasoline that are hidden in the purchase price.  Should we include that as a brewery tax as well?

Hell, why not.

Our gas tax here in Iowa goes up by $.10/gallon on Sunday.  Law was signed this week.  The explanation was literally "gas prices are down, now is the time to raise the taxes before the prices go up again".  I don't deny we need funds to repair roadways but they could, at the very least, not openly sell it as "the public is too stupid to notice the tax went up and will blame the oil companies".

Iowa liquor stores (they were all state owned at one time) used to have a poster that had a liquor bottle on it with %'s of the cost marked off.  Under 10% was product cost.  The rest was taxes. 

Paul
Title: Re: The most expensive ingredient in beer...
Post by: dwl on March 21, 2015, 07:41:56 pm
There are many taxes, all of which end up as a percentage of beer production cost.

Most states you pay property taxes on the building.  In some you also pay property tax on all the equipment, vehicles, supplies, etc.  In Oregon you will pay property tax on every bit of equipment of any kind that is not already being taxed as part of the building.  Also all sales material, brochures, glassware, and office supplies down to paper clips -- everything used except ingredients to make beer or finished beer inventory.  It's nuts.

Also, if you have employees you will be paying FICA tax, workers comp, unemployment, and probably more depending on state and city.  And if you manage so show income after all expenses then you will be paying income tax on that too.

Don
Title: Re: The most expensive ingredient in beer...
Post by: nateo on April 06, 2015, 10:54:28 pm
Is it just raw material? RM+ labor? RM + Labor + utilities and rent? How about amortization on equipment?

Exactly. The most expensive ingredient in beer is time.
Title: Re: The most expensive ingredient in beer...
Post by: Pawtucket Patriot on April 29, 2015, 12:58:26 am
I don't think our taxes are as high as 40% of our costs, but they definitely add up. We pay federal excise tax on what we produce (fortunately, we are exempt from state excise taxes...for now). Then, we pay sales tax on what we sell at retail in our taproom. Sales tax is levied against us at a higher rate than normal in our city because the product we're selling is an alcoholic beverage. I would assume that's fairly common in most larger metropolitan areas.

We don't get taxed on our raw materials, thankfully. But I would guess that there are import tariffs levied on the importers/suppliers that get passed on to us in the form of higher ingredient costs. The vast majority of our malt comes from overseas, as we specialize in what we refer to as "iconic lager styles" (read: lots of imported European malt). You could count the huge fees we pay to the city and state for licensure (both to operate as a brewer and as a retail taproom) as tax-like fees – the hit we take from those fees is pretty substantial.

edit: Oh, and then we get taxed on our income on both the state and federal level, which is generated from beer sales that have already been subject to excise tax, sales tax or both. Lots of double (maybe even triple) taxation going on there.
Title: Re: The most expensive ingredient in beer...
Post by: rabeb25 on April 29, 2015, 12:49:48 pm
I don't think our taxes are as high as 40% of our costs, but they definitely add up. We pay federal excise tax on what we produce (fortunately, we are exempt from state excise taxes...for now). Then, we pay sales tax on what we sell at retail in our taproom. Sales tax is levied against us at a higher rate than normal in our city because the product we're selling is an alcoholic beverage. I would assume that's fairly common in most larger metropolitan areas.

We don't get taxed on our raw materials, thankfully. But I would guess that there are import tariffs levied on the importers/suppliers that get passed on to us in the form of higher ingredient costs. The vast majority of our malt comes from overseas, as we specialize in what we refer to as "iconic lager styles" (read: lots of imported European malt). You could count the huge fees we pay to the city and state for licensure (both to operate as a brewer and as a retail taproom) as tax-like fees – the hit we take from those fees is pretty substantial.

edit: Oh, and then we get taxed on our income on both the state and federal level, which is generated from beer sales that have already been subject to excise tax, sales tax or both. Lots of double (maybe even triple) taxation going on there.

Sorry for the off-topic Matt, what is your brewery? ( I am in MN as well) Thanks
Title: Re: The most expensive ingredient in beer...
Post by: boulderbrewer on April 29, 2015, 01:31:15 pm
Just in case Matt doesn't answer. Here is a link.

 http://bauhausbrewlabs.com/
Title: Re: The most expensive ingredient in beer...
Post by: rabeb25 on April 29, 2015, 01:33:47 pm
Oh, no s***!?? I have been there..
Title: Re: The most expensive ingredient in beer...
Post by: Pawtucket Patriot on April 29, 2015, 02:41:57 pm
Oh, no s***!?? I have been there..

Nice - hope you had a good time!