According to the Small Business & Entrepreneurship Council, New York is ranked 48 out of 50 on its Business Tax Index 2012: Best to Worst State Tax Systems for Entrepreneurship and Small Business.
For small beer crafters located in New York, the climate recently went from bad to worse.
Last week the Wall Street Journal reported that the State has ended tax and fee exemptions for in-state brewers.
The story comes as a result of a March 28 state court decision declaring the exemptions unconstitutional. On April 10, the State Liquor Authority issued an advisory stating all beer sold in New York is now subject to state and city excise taxes. In addition, all brewers must pay a $150 brand label registration fee submitted to the State Liquor Authority.
Previously, the first 200,000 barrels of beer produced NY were exempt from excise taxes, and beer produced in small batches in the state were not subject to the $150 fee.
The decision doesn’t come as a surprise. A court will strike down a state regulation affecting interstate commerce unless each of the following are met:
- (i) The regulation must pursue a legitimate state end;
- (ii) The regulation must be rationally related to that legitimate end; and
- (iii) The regulatory burden imposed by the state on interstate commerce, and any discrimination against interstate commerce, must be outweighed by the state’s interest in enforcing its regulation.
Because the regulation in question on its face discriminates out-of-state interests, there is a strong presumption of invalidity.
To what extent will the decision impact local brewers, distributors, bars, retailers, and consumers?
The WSJ piece demonstrates the impact on Captain Lawrence Brewing Co., located in Elmsford, NY:
Expected 2012 production: 20,000 barrels
Annual brand fee: $3,000 ($150 X 20 beers)
$0.14 per barrel NYS tax: $86,800 (paid by Captain Lawrence)
$0.12 per barrel NYC tax: $44,640 (60% sold in NYC, paid by distributor)
Increased cost to produce: $0.48 per case; $6.57 per barrel
Retailers and bars may have no choice but to jack up their prices. As if $7 for a pint of a quality local brew in NYC isn’t high enough…