When the tax man comes for your kombucha


Kombucha—a slightly fermented beverage usually made of tea, yeast and healthy bacteria—has become the new rage. As more consumers seek out the drink, more producers have sprouted up across the country to start making it. Because kombucha ferments, it contains small amounts of alcohol—but far below any level that could intoxicate an adult. Regardless, the feds have started trying to apply antiquated federal alcohol taxes to kombucha, meaning that if it reaches a certain threshold of alcohol content it could be taxed like regular booze. R Street’s Jarrett Dieterle writes for Washington Examiner about why this doesn’t make any sense at all:

[U]nder antiquated federal tax provisions, kombucha can occasionally become subject to alcohol excise taxes despite the fact that the product, by nature, only has trace amounts of alcohol. In light of this, both to promote commercial freedom and as part of a greater push to modernize outdated alcohol laws, fixing this accident of history should be a priority for federal lawmakers.

Under the federal tax code, all “fermented beverages” that contain 0.5% of alcohol or more by volume are technically considered “beer” and therefore subject to alcohol excise taxes. Federal excise taxes on beer follow a relatively complicated formula, but they can range anywhere from $3.50 a barrel up to $18 a barrel, depending on the size of the brewery.

When kombucha is made, it is usually below the 0.5% threshold for alcohol. However, if it’s not properly refrigerated after leaving the factory for distribution, it continues to ferment, thereby raising the alcohol level above the intended amount…

n recent years, the Alcohol and Tobacco Tax and Trade Bureau has taken to sending warning letters to kombucha makers, informing them that their products tested slightly over the limit and threatening fines of more than $10,000.

This is for little reason, since the 0.5% level has absolutely nothing to do with intoxication but rather originally traces its heritage to the early 1900s, when pro-Prohibitionists used it as a means to control the spread of alcohol to new states…

Read the whole piece here.