As Homer Simpson posits, there are few problems that beer can’t solve. The American love of beer has been partially responsible for the explosion of craft breweries in the U.S. – going from a 10 percent market share of the beer industry in 2012 to a 19 percent share today, according to USA Today. If you decide to open your own microbrewery, you might want to look into some tax incentives while you’re perfecting your pilsner recipe.
New York recently passed A.B. 1719, offering small breweries in New York City a tax credit of 12 cents per gallon produced, up to a maximum of 500,000 gallons, with an additional credit of 3.68 cents per gallon for production up to 15 million gallons, according to a story by Gerald B. Silverman in the Weekly State Tax Report. The credit is available against New York City taxes and is complemented nicely by an expanded alcoholic beverage production credit in New York State. Earlier this year, New York’s beer production credit was renamed and expanded to also include a tax credit for cider, wine and liquor, so if an imperial stout isn’t for you, then you have other options.
The New York State credit equals 14 cents per gallon, regardless of the type of alcohol produced, for up to 500,000 gallons. After the first 500,000 gallons, the credit equals 4.5 cents per gallon, with the credit maxing out after an additional 15 million gallons (for beer, wine and cider) or 300,000 gallons (for liquor), according to Technical Memorandum TSB-M-16(5)C.
Pennsylvania Act 84 has made numerous tax credit changes, including the revival of a tax credit for malt beverage producers, according to the Pittsburgh Business Times. The credit against the malt beverage tax is available starting July 1, 2017, for up to $200,000 of qualifying expenditures. The credit is limited to $5 million per year for all taxpayers combined. The credit was previously available from Jan. 1, 1974 until Dec. 31, 2008, according to a summary produced by the Pennsylvania Department of Revenue.
Creating craft beer takes a lot of effort and experimentation. While testing batches of potential brews may not feel like research, breweries may be eligible for a federal research and development (R&D) credit, according to alliantgroup. The alliantgroup website notes that activities that may qualify as R&D include “developing new or improved product formulations” and “testing of product ingredient mixtures for desired flavor or aroma profiles.”
Many states have a state R&D credit that has similar, or even identical, eligibility requirements to the federal R&D credit. For example, the California Research Credit uses a four-part test to determine whether a project qualifies, and the parts of the test are based on the requirements listed in I.R.C. § 41(d).
If you’ve ever dreamed of giving up your desk job for double-hopped IPAs, starting a microbrewery may be more affordable due to tax incentives. Just remember to research responsibly.
Continue the discussion on LinkedIn: Are tax incentives the best way for states to foster growth in craft breweries?
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