North Carolina Self Distribution Fight Becomes More "Taxing" Than Ever

Austin Ray

THE GIST
The fight for brewer-friendlier self-distribution laws in North Carolina has become a little bit more complicated, as wholesalers have adopted a new non-traditional line of argument to oppose change: brewers aren’t keeping up with their taxes, they say.

Citing figures from the state’s department of revenue, wholesalers contend nearly a quarter of the state’s breweries aren’t in total tax compliance, which, in turn, has curbed state excise tax revenues. Allowing breweries to self-distribute more beer than what is already permitted, the argument goes, would only exacerbate the issue.

The state’s brewers guild, meanwhile, believes this assertion is a “punitive” one built on a willful misreading of the statistics. The organization says it’s means of combatting the group’s own competing effort to dramatically raise the self-distribution cap.

WHY IT MATTERS
As we reported last month, North Carolina brewers have been throwing their weight behind HB 500, a bill designed to overhaul a number of the state’s beer industry regulations. Paramount among them, the proposed legislation would enable breweries to self-distribute up to 200,000 barrels per year, raising the current 25,000-barrel cap. Wholesalers, keeping with custom, have ardently opposed this effort by arguing such a dramatic uptick would rupture the three-tier system and ultimately only benefit a handful of brewers.

That’s all pretty par for the course. The conflict becomes unique, however, when viewed through the lens of tax compliance.

This new wrinkle began to form when the state’s Department of Revenue released a memo claiming 38 of 164 breweries in the state, or 23%, are not in total compliance. The memo was initially composed to help lawmakers understand a different bill filed late last month, HB 480, which would impose new tax reporting requirements on brewers and distillers—but more on that in a minute. Wholesalers seized on the eye-catching figure as an opportunity to hamper the self-distribution effort.

“It makes no sense to expand self-distribution when nearly one-fourth of all brewers are out of compliance with their tax payments and reporting,” says Tim Kent, executive director of the North Carolina Beer & Wine Wholesalers Association. “State excise tax revenues have been basically flat for the last six years. The growth rate has been less than one percent a year since 2011. Now we know why.”

Brewers take issue with both this logic and the non-compliance stats informing it.

For starters, the North Carolina Brewers Guild counters that “a full quarter” of the state’s breweries are less than a year old, and many might be permitted to manufacture but don’t actually yet make beer. Such breweries—those with permits that aren’t currently brewing—still have to report. The guild says early stage businesses might not be aware of the requirement, and thus are a driving force behind what appears on its face to be a high non-compliance figure. Mature brewers, the types that would actually benefit from a raised self-distribution cap are, by and large, compliant, the guild says.

NoDa Brewing Company of Charlotte sold approximately 16,000 barrels last year, about 14,000 of which were self-distributed. Company founder Todd Ford agrees with the guild’s assessment.

“It’s ridiculous to assume that the most successful and the most advanced breweries, self distributing breweries in North Carolina, are not paying their taxes, and [wholesalers have] no evidence to prove that we aren’t,” Ford says. “I risked my life’s savings—and my wife’s—for this business. I’m not going to do anything shady.”

As for revenues being flat, Margo Knight Metzger, executive director of the guild, says the beer category at large is to blame, not small brewers being non-compliant with their taxes.

“That is an intentionally misleading comment,” she says. “In North Carolina, excise tax is collected on sales of beer. And overall beer sales are flat. Because craft is growing but all the big macro brewers are flat, [wholesalers are] trying to cast doubt on our industry by using a misleading statistic.”

That non-compliance figure isn’t being wielded exclusively to kill increased self-distribution, however. It’s also being propped up to push forward another legislative effort supported by wholesalers and opposed by brewers: the abovementioned HB 480.

Most controversially, that bill would require certain brewers—namely, those that can legally self-distribute—to divulge privately held information (barrelage sold, dollar sales both on- and off-premise, value of destroyed, spoiled, or otherwise unsellable product, etc.) to the state’s alcoholic Beverage Control Commission (ABC).

“Instead of that information going to Department of Revenue, which is secure and confidential, they want it delivered to the ABC committee, and that becomes public knowledge,” NoDa's Ford adds. “Who I’m selling to, how much I’m selling it for, including stuff I’m selling outside the state of North Carolina, which doesn’t even apply to North Carolina taxes, all that information is available to the wholesalers. That’s ridiculous, they don’t need that information.”

The NC Guild says it’s fine with new reporting requirements and wants its members to pay taxes in accordance with the law. However, it opposes the fact that the bill singles out breweries with wholesaler permits instead of applying to all wholesalers.

Both bills have been referred to the committee on alcohol beverage control.

—Dave Eisenberg