The Small Brewer Reinvestment and Expanding Workforce Act, known as the "Small BREW Act", is bipartisan legislation introduced to Congress in early 2015. The overall goal of the Small BREW Act is to revamp the federal excise tax scheme for small and independent breweries headquartered in the United States, reducing their federal tax burden. There are over 3,400 breweries in the United States today. Currently, these breweries pay approximately $405 million annually in federal excise taxes. By introducing lower tax rates for small breweries with total annual production of 6 million barrels or less, the Small BREW Act would lower this overall tax burden by an estimated $60 million each year. Legislators and industry groups in support of the Small BREW Act hope these tax savings will be used by small breweries to reinvest in their businesses and continue to expand and hire additional workers, which in turn would boost local economies where small breweries operate.

The legislation currently has 41 cosponsors in the House of Representatives, and 30 cosponsors in the Senate. The craft beer industry and the U.S. small business industry as a whole is keeping a very close eye on the progress of the Small BREW Act, given the potentially significant impact the legislation could have on an influential and ever-growing segment of the U.S. economy.

How Will the Small BREW Act Affect Federal Tax Rates for Craft Breweries?

Specifically, the Small BREW Act would lower the federal excise tax rates imposed on U.S.-based breweries that produce 6 million barrels of beer or less annually. The federal excise tax rate on the first 60,000 barrels produced by such qualifying breweries would be cut by fifty percent of current rates. In addition, a new lower tax rate would be instituted for production ranging from 60,001 to 2 million barrels. Above 2 million barrels of annual production, the current tax rates paid by all breweries, regardless of size, would continue to apply.

Summary of the Proposed Legislation

* Under current federal tax rules, only small breweries with annual production of 2 million barrels or less qualify for the $7.00 tax rate on the first 60,000 barrels produced each year.
** Under the proposed Small BEER Act legislation, small breweries with annual production of 6 million barrels or less would benefit from the revised federal excise tax rates.

Intended Impact of the Small BREW Act

According to supporters of the Small BREW Act, the existing tax scheme does not go far enough, and small breweries today are facing significant economic challenges. Despite growing consumer demand for increasingly unique and diverse craft beer offerings, small breweries continue to struggle financially due to the ever-increasing number of competitors in the "craft beer" marketplace, as well as the higher economies of scale and cost of marketplace entry faced by small breweries as compared to their large, entrenched, multinational competitors.

To put it in perspective, sales of beer sold by "craft breweries" currently comprise only 11% of total annual beer sales in the United States. Craft breweries are small, independent and traditional breweries headquartered in the United States. In 2014, for the first time ever, craft breweries' market share reached double digits.

Unlike many other areas of the U.S. economy – particularly among small businesses – craft breweries continue to grow in number and popularity, and consumer demand for craft beer products continues to grow year after year. In fact, according to the Brewers Association, most Americans live approximately 10 miles from a craft brewery. Supporters of the Small BREW Act hope that the legislation could translate into growing numbers of jobs for U.S. workers and strengthened local economies.