Yesterday, Shelton Brothers issued a response to the tax situation in New York. Recently the state’s supreme court recently declared unconstitutional two state tax exemptions that benefited small breweries. That means the consumer pint price could increase. At the source of the controversy is Shelton Brothers, an importer that is based in Massachusetts. Basically, the importer filed suit claiming that New York brewers paying lower taxes than out of state breweries was unfair. The resulting decision has brought Shelton some headaches. Yesterday Shelton issued a statement, basically calling out Brooklyn Brewery. Today, Garrett Oliver of Brooklyn responded in a Beer Advocate forum:
Well, well, well. I have just been made aware of this thread. Let me just make a few points here. I am not a lawyer like Mr. Shelton, so I cannot claim to have any direct knowledge of what effects these tax law changes will have. I also have nothing to do with legislative issues or dealings with political figures – I make beer. I argued to Mr. Shelton, in a private email, that perhaps he should not be doing things that will have negative effects on small breweries.
I pointed out that I like many of the beers he imports, that I have helped promote them (as most of us have, in some way or other), and that I’ve poured them in numerous tastings. Why, I wondered – talking, as I thought I was, to him alone – would he want to do a thing like this? Even if his statements regarding tax law are correct (and I have no idea whether they are), many states have situations that in some way favor in-state brewers. Frankly, it never occurred to me to think of them as unfair. I will not go down this path and print bits and pieces of Mr. Shelton’s response; I would, however, characterize it as inflammatory. Mr. Shelton and I have had many heated arguments, often to the wee hours, all over foreign capitols; it’s a running joke at this point.
I will also say that I have not, with anyone, anywhere, discussed, mentioned, or alluded to this issue. Nor have I read any of these blogs he speaks of. Did I ask Mr. Shelton “WTF”? Yes, I certainly did. I did not expect to find my comments to him characterized in the press; I thought I was talking to Mr. Shelton. But then again, I’m an adult, and I do read the news, and I should know better – people do these things. And, the more I think of it, in this situation, that makes me the idiot here. Mr. Shelton is far smarter, and knows exactly what he’s doing.
pic via David Shankbone
Shelton Brothers has been embroiled in recent controversy in regards to a recent Supreme Court ruling in the State Of New York. Shelton has been ripped a new one by brewers and bloggers alike, which they address below. If you’re into beer law/fees and more in the beer business, read on.
From Shelton Brothers:
We’ve heard that there’s been a bit of banter about the recent New York Supreme Court ruling, mostly by ill-informed and emotionally fraught bloggers. (Keep those death threats coming, folks!) The facts here are really quite simple, though the legal and financial issues are apparently a bit difficult to comprehend. Anyway, here’s what is really going on.
New York brewers weren’t being required to pay label registration fees and taxes that out-of-staters, including ridiculously small guys like us, had to pay. We tried to level the playing field by knocking out these costs, for everybody, but in the end the State of New York decided to level it by making New Yorkers pay, the same way we’ve been paying for years. It’s not what we were hoping for — we would have loved it had these fees been eliminated for us, as well, since we pay way more of them than any New York brewer ever will — but, in the end, the decision is at least fair. As people from outside the State, we can do no more to change the law; New York brewers have to get their own legislature to do that. Now that they are seeing what we’ve had to put up with for years, they’re unhappy, and they’re going to be getting these laws changed. That will benefit us too. It’s just too damn bad that instead of lobbying to change the state law they’re wasting time being furious at us when all we did was point out that we were getting screwed.
I don’t believe that anyone who thought about it would argue that little breweries from out of state should pay more in registration fees and taxes than in-state brewers pay. Small in-state brewers paid no registration fees, and all New York brewers except the largest two paid nothing at all in taxes, while every out-of-state brewer or importer had to pay New York’s registration fees (the highest in the country) and New York’s beer taxes on every drop of beer they sold in the state. This is obviously wrong, and both the New York Attorney General and the State Court agreed that it was wrong, as well as unconstitutional. Because there was no doubt on this point, the case was settled, and it was left to the State — not us — to decide how this discrimination against out-of-state breweries would be remedied.
It’s easier to understand how things work when you take the two issues, brand registration fees and taxes, separately.
Brand Registration Fees
From the beginning, we have paid way more registration fees than anyone in New York — about $20,000 just last year. That amounts to 2.5% of the total paid by all brewers and importers, even though our share of the New York market is statistically insignificant — effectively 0%. That’s why we pushed to have the brand registration system, with its onerous fees, eliminated outright. To start with, it serves no useful public purpose. (If it really mattered, the State wouldn’t have let small in-state breweries ignore it completely.) And it’s just a money-making scheme that is really unfair because it hits the little guys who have a lot of little brands much harder than it hits the huge guys with a few huge brands. Basically, it’s a hideously regressive tax.
The State chose instead to eliminate the discrimination issue by simply making every brewery subject to label registration. That’s because New York is nearly broke, like all states, and wants the cash. We are terribly disappointed that the State went the way it did, but we figure that killing the in-state exemption is the first big step toward wiping out brand registration, and those nasty fees, entirely. We are pretty sure that once New York brewers get a taste of what we’ve been forced to swallow for years, they’ll get fired up and get the law changed.
We never had any discussions with the State about how to address the problem that only out-of- state brewers have been made to pay the New York beer taxes. This tax discrimination — though it is so plainly wrong — wasn’t the focus of our case. Actually, we didn’t even know that the State had opted to make New Yorkers pay the tax until we received hate mail from the head brewer at Brooklyn Brewery, who gently informed us that we were the new “Antichrist” because Brooklyn would “lose” half a million dollars as a result of the State’s deconstruction of New York’s discriminatory tax scheme, with the consequence that he and other New York brewers would not be getting bonuses this year —and it was all our fault. He added that New York brewers would shortly be going up to Albany, the seat of New York government, tossing all of our cute little foreign brewers into a burlap sack along with a bunch of heavy rocks, and throwing them in the lake. (Is there a lake in Albany? Maybe he meant the Hudson River.)
We have certainly seen evidence of follow-through on that last threat. Credulous bloggers in New York, slavishly taking everything their local brewers tell them as truth, have called for a boycott on the terrific beers our little foreign breweries make. This misplaced angry energy will dissipate eventually, and when it does, maybe the New York brewers will start to address the real issues here. It really isn’t for us and other out-of-state brewers and importers to say whether New York should keep its beer taxes or do away with them, as long as we outlanders are not the only ones paying the taxes while New York brewers go tax-free.
If it really is a matter of whether Brooklyn’s head brewer gets a bonus or not, New York has to decide whether it wants to give him and his colleagues that money, or use it for other essential services, like education, fire and police protection, etc., etc. I know how I’d vote on that. Unfortunately I don’t live in New York. But New Yorkers should be asking why tax breaks intended to reduce the cost of New York-brewed beers are being pocketed by some brewery big- wigs. And people are mad at us?
The truth is that the brewers themselves can avoid this dilemma very simply. They just have to factor this new cost into their pricing — as the rest of us have had to do all along. In the last week, brewers, and their blogger thralls, have been churning shamelessly simplistic claims that New York brewers will collectively “lose” $3 million. In reality, the state tax will add less than two cents to the cost of a pint of beer (the NYC tax that only applies to sales in that municipality is even less), and those costs will be passed along with scarcely any notice by the consumer. Keep in mind that New York consumers are already paying that pittance for beer from out-of-state, and — boycotts aside — they’re still drinking it. Clearly, the New York brewers’ world is not going to fall apart if they are made to pay taxes like the rest of us. Consumers will see an insignificant rise, or no rise at all, in the price they pay for New York beer. The head brewer will get his bonus. And the market is made fair. And certainly no one is going to go out of business, as has been suggested in some of the less thoughtful blogs.
If any New York brewers tell you now that they can’t raise their prices, even so slightly, because that will make their beer more expensive than beer from their small out-of-state competitors, that is nothing but an unwitting admission that up until now they’ve just been pocketing the savings they enjoy from that unfair tax exemption, rather than passing it along to consumers in the form of lower prices.
So all of this howling and fulminating about the persecution of New York’s small brewers is a complete crock of spent grains. I can half understand that it’s a new and unsettling experience for some people suddenly to be on a level playing field, but that doesn’t excuse the carping and the vitriol. It’s a wee bit galling, in view of the fact that the same people had no concern at all about the burden that their out-state brethren had to bear, as long as they themselves didn’t have to pay any tax.
The bottom line is that New York, in a supposed effort to give a leg up to its “small” brewers over really large ones, ended up throwing all out-of-state brewers and importers — the really tiny ones, like us, along with the rather large and the really huge ones — into the coarse burlap bag mentioned by the brewer at Brooklyn. There are plenty of ways to help in-state small brewers that don’t involve totally screwing out-of-state small brewers. Presumably, even while a few more emotional types are hysterically trying to vilify us, cooler heads at the New York State Brewers Association are already getting legislators to look at sensible non-discriminatory measures to help small brewers in New York. Even though they haven’t been all that endearing lately, we’ll support them 100% when they do.