Pain at the Beer Pump Predicted as Tax Ruling Hurts New York Breweries

By Meredith Hoffman on May 1, 2012 6:59am 

Kelly Taylor, who owns Kelso of Brooklyn brewery along with his wife, tasted a new Kelso Pale Ale from a fermenter in his brewery. Taylor increased his prices on beer by $4 a keg this week.
Kelly Taylor, who owns Kelso of Brooklyn brewery along with his wife, tasted a new Kelso Pale Ale from a fermenter in his brewery. Taylor increased his prices on beer by $4 a keg this week.
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DNAinfo/Meredith Hoffman

BROOKLYN — Higher prices for local suds are on tap after a court ruling hit New York brewers with higher taxes.

City brewers such as Kelso of Brooklyn and Manhattan's Chelsea Brewing Company are mulling raising their prices to offset thousands of dollars in additional costs after a state court ruled an exemption from state excise tax for New York breweries was unconstitutional.

"I have to raise my price now because I can't eat the cost," said Kelly Taylor, who runs Clinton Hill brewery Kelso of Brooklyn. He raised the price of kegs he sells to beer distributors by $4 and estimated his beer will end up costing $1 more per draft for customers.

The tax costs brewers 14 cents per gallon of beer they sell in state, and an additional 12 cents per gallon for the beer they sell in New York City.

For Kelso, which Taylor said produces 7,000, 15 1/2 gallon kegs per year, the tax bill comes out to roughly $21,000 a year. When you add the beer Kelso makes for the Heartland Brewery chain, the cost doubles, Taylor said.

"I probably will raise prices half and eat the other half of the cost," said David Katleski, owner of Empire Brewing Company, which produces beer in Brooklyn and Syracuse. He said he has to pay an additional $4.03 per keg in taxes.

But Katleski was confident customers would not stray from local purchases, despite a price increase.

"We have a loyal local movement in New York state," said Katleski. "And, because we brew in Brooklyn, there's a tremendous advantage, because Brooklyners love things from Brooklyn, even more than in other places in New York state."

The owners of Coney Island's Shmaltz Brewing Company and Manhattan's Chelsea Brewing Company said they will likely increase their prices soon as well.

"It's an unfortunate time to have to pass on price increases.  It affects our ability to be competitive in the beer market," said Jeremy Cowan of Shmaltz, which makes He'Brew Beer in Coney Island's "smallest brewery in the world" and in Saratoga Springs.

Cowan said he had not decided the details of his price increase yet, but estimated that consumers would have to pay anywhere from $1 more per draft and six-pack.

Pat Greene, who has owned Chelsea Brewing Company — known for Checker Cab Blonde Ale and Sunset Red Ale — since 1995, said he had avoided raising prices in the past when the cost of hops jumped, but that he would probably have to pass the new taxes and label fees onto buyers.

"I don't want to raise prices, but I don't know if that's possible," said Greene. "It's still too early to tell the best avenue to take."

The new tax came after the State Liquor Authority was sued by Massachusetts beer distributors Sheldon Brothers. They argued that the tax exemption gave New York state breweries a competitive advantage over those in nearby states.

After the exemption was declared unconstitutional, local politicians and brewers are brainstorming ideas to help the state's 77 local microbreweries, brewpubs and regional craft breweries.

Katleski, who is also president of the New York State Brewers' Association, traveled to Albany on Monday to lobby state lawmakers to support local breweries.

Steve Hindy, owner of the renowned Brooklyn Brewery in WIlliamsburg, said he hoped the lobbying effort would result in a new kind of tax incentive, and vowed to not raise prices just yet — even though he now owes an extra half-million dollars in taxes annually.

"I'm hoping something's going to change," said Hindy. "We just invested $12 million in our brewery in Brooklyn."

And Damian Brown, who hopes to move production for his small Bronx Brewery from Connecticut to the South Bronx by the end of this year, said he was unsure how his business would cope with the extra cost.

Joshua Richholt, is soon planning to open the Well in East Williamsburg with "the largest selection of beers" in the city.

"It's very rare for a bar just to raise a price by, say, 40 cents," Richholt said. "I don't have anyone that's changed the prices yet, but they usually do it on a monthly basis so I'll probably know in the next month or so."

But to Taylor, the price jumps are inevitable — and even a bit late, since he said he already owes taxes on beer he's sold since the law took effect, without a significant warning to brewers, in late March.

"We already owe taxes on beer shipped since March 28," he said. "Since then, we've shipped 2,000 kegs, so it equals $8,000 in taxes. It's basically an $8,000 penalty."

Still, Taylor predicted customers would remain loyal.

"People are starting to realize the benefits of local beer," he said. "Fresher beer is better, it's more layered and interesting.

"Now you can get any beer you want from New York state. It's an aggressive, eclectic collection."

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