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When the tax man comes for your kombucha

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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 In light of this, both to promote commercial freedom and as part of a greater push to modernize outdated alcohol laws, fixing this accident of history should be a priority for federal lawmakers.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.

Which States Are Winning the Craft Beer Boom?

Image courtesy of Visual Capitalist.

Image courtesy of Visual Capitalist.

The craft beer boom continues to proceed apace, spreading to cities and small towns around the country. Data collected from the Brewers Association shows which states have seen the most growth in craft breweries, and which have seen the least. Unsurprisingly, many West Coast states—among the first to liberalize their brewpub laws in the 1980s and 90s—have among the highest number of craft breweries. Other states, particularly many in the south, are still lagging behind because of regulatory strictures. Visual Capitalist summarizes:

All movements start with rebellion, and the craft beer revolution is no different.

Born from the frustration of mass-produced beer made from cheap ingredients, entrepreneurs went head-to-head with global brewery giants to showcase local and independent craftsmanship.

Suddenly, drinking beer became less about the alcoholic content and more about the quality and experience. Craft beer allowed for constantly changing flavors, recipes, and stories. With sales accounting for 24% of U.S. beer market worth over $114 billion, the global craft beer movement has been historic…

According to the data, Vermont has emerged as the craft beer capital of the U.S. with 11.5 breweries per 100,000 people. That’s equal to 151 pints of beer produced per drinking-age adult. Following closely behind are Montana and Maine, each with 9.6 breweries per capita.

You’ll notice that in Southern states such as AlabamaGeorgia, and Mississippi, that there are only 0-0.9 breweries per capita. This is actually because of tighter liquor laws—for example, only 10 years ago, it was illegal to sell specialty beer in South Carolina that contained more alcohol content than a typical Budweiser…

Read the rest here.

Kosar and Dieterle on the Meaning of the Tennessee Wine SCOTUS Case

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As we noted last week, the Supreme Court struck an important blow for freedom in its Tennessee Wine v. Thomas decision, which held that Tennessee’s requirement that liquor store owners be residents of the state was unconstitutional. R Street’s Jarrett Dieterle and Kevin Kosar explain in a piece for USA Today how the implications of this decision could be far reaching, especially when it comes to direct-to-consumer alcohol shipping:

Just after the 100th anniversary of Prohibition’s start — and over 85 years since its repeal — Americans could be forgiven for assuming that government remains blissfully removed from their cocktail glass. Unfortunately across the country, states and local governments still enforce a bevy of outdated and oftentimes downright silly alcohol laws. While these laws have proved notoriously difficult to get rid of, a new Supreme Court decision issued could spell the end for a broad swath of cronyist and antiquated booze rules — and perhaps be the first step toward a more national alcohol marketplace…

The court’s holding might seem limited to the unique circumstances of Tennessee’s law, but it has the potential to be a game changer in the world of booze. The biggest change could involve the shipment and transportation of alcohol.

Unlike just about every other product on the market today — nearly all of which can arrive at your door in two days — direct-to-consumer alcohol shipping is incredibly limited. While a previous Supreme Court case allowed wineries to ship their bottles to consumers in neighboring states, very few states allow out-of-state retail stores — not to mention breweries and distilleries — to engage in interstate shipments.

Under the logic of the court’s holding in Tennessee Wine, however, allowing in-state shipments of alcohol while forbidding out-of-state shipments violates the Constitution. If more of these laws are challenged accordingly, it could mean that a Michigander could soon be able to have her favorite Vermont beer shop send IPAs directly to her door…

Read the whole piece here.

R Street's Jarrett Dieterle Featured on Reason TV

R Street’s Jarrett Dieterle was featured in a video by Reason TV about the dumbest alcohol laws in America. He discussed both recent successful reforms, such as allowing Native Americans to distill on tribal lands and the recent Supreme Court decision in Tennessee Wine, as well as antiquated laws that still remain on the books. You can watch the video here:

Facebook Continues to Ban All Alcohol Sales

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Legendary whiskey writer Chuck Cowdery recently posted about Facebook’s ongoing policy to clarify its ban on alcohol sales through its site:

Yesterday, all or most of the myriad whiskey pages on Facebook received a letter stating, in part, "While we allow people to talk about alcohol products we will not allow people to sell or purchase these regulated products on our site. This has always been true in places like Marketplace and Commerce posts in groups, but we will now extend this to organic content…

None of this is new. Except in Kentucky and a few other places, the secondary market for alcohol is illegal, and in those few places where it is legal it is restricted.

The state beverage alcohol agencies that are supposed to enforce these laws rarely do, but they will lean on companies such as Facebook, eBay and Craig's List to get them to clamp down on the peer-to-peer commerce that takes place on their platforms…

(Read Cowdery’s full post here).

As Cowdery mentions, some states, like Kentucky, have recently made moves to liberalize their policies on secondary sales, but otherwise these types of sales are illegal across the country. Both Cowdery and R Street’s Kevin Kosar have written previously about why legalizing the secondary booze market could be beneficial.

SEC Football Stadiums Now Can Serve Alcohol

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Last year, R Street’s Marc Hyden called for the SEC to loosen its restrictions on allowing colleges in its conference to serve alcohol at football games. Hyden noted that other NCAA schools already allowed alcohol sales and that it only made sense for the SEC to follow suit:

There are many reasons [some] oppose permitting alcohol in the SEC’s stadiums, but none of them are good.

The most frequent justifications are promoting public safety and protecting the attendees’ general well-being. After all, we can’t have increased crime or fans getting sick and passing out. (University of Georgia fans probably wish they had slept through the title game, but I digress.)

While increased alcohol consumption can sometimes exacerbate tense situations, a 2016 study found no increased criminal activity when college stadiums serve alcohol to general attendees. There is reason to believe, however, that alcohol-related crime may even decrease in certain locales with alcohol sales when paired with other policies, as was the case at West Virginia University. Further, permitting general alcohol sales in collegiate arenas might actually offer a public health benefit.

(Read Hyden’s full piece here.)

This past week, according to Bleacher Report, the SEC finally heeded this call and announced that it will allow individual schools within the conference decide whether they want to serve alcohol at games:

SEC Commissioner Greg Sankey announced Friday the conference is set to lift its ban on stadiumwide alcohol sales Aug. 1.

"Schools will have autonomy," Sankey told reporters. "This now an opportunity for institutions to make responsible and appropriate decisions [about alcohol]."

More here.


American Whiskey Gets a Partial Tariff Reprieve

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The Trump Administration’s ongoing tariff wars have roiled the American drinks industry, hurting producers of both beer and whiskey. Canada and Mexico’s retaliatory whiskey tariffs were recently lifted, but as the Chicago Tribune reports, producers are still concerned about European markets:

American whiskey producers feeling the pain from the Trump administration's trade disputes have gotten a shot of relief with an agreement that will end retaliatory tariffs that Canada and Mexico slapped on whiskey and other U.S. products.

The whiskey industry hailed the arrangement to ease trade tensions among the North American allies and said it hopes it's the first of several rounds of good news on the trade front. Distillers have suffered shrinking exports since the last half of 2018 due to tariffs in some key markets.

President Donald Trump last Friday lifted import taxes on Canadian and Mexican steel and aluminum and delayed auto tariffs that would have hurt Japan and Europe. In return, the Canadians and Mexicans agreed to scrap their retaliatory tariffs on U.S. goods, including American whiskey.

But U.S. whiskey makers still face significant trade hurdles in the European Union, the industry's biggest export market…

Read more here.

Congress Tries (Again) to Allow the Post Office to Ship Alcohol

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Shipping alcohol is notoriously complicated in modern day America. This is especially odd given that, uh, everything else in the universe seems to be a mere 2-day-shipment away. While private carriers and individuals states have complicated rules around alcohol shipping, the United States Postal Service forbids it from being shipped at all. A determined member of Congress is trying once again to fix this anachronistic ban:

The USPS Shipping Equity Act (H.R. 2517) was introduced by Congresswoman Jackie Speier (D-CA). She said the bill would end the Prohibition-era restriction that prohibits the Postal Service from shipping alcohol.

“In 2016, California was America’s top destination for the direct shipment of wine, yet consumers and manufacturers are prohibited from using the U.S. Postal Service to ship or deliver these everyday products,” Speier said…

This is not the first time Speier has made this effort. In fact, it’s not the third.

Her bill was last introduced in 2017 but failed to advance. It was also introduced in the two sessions of Congress prior to 2017. She obviously really wants to see the Postal Service start shipping alcohol, but there historically has been little interest in Congress to pass such a law. Maybe the fourth time is the charm?…

Read more at FedSmith.com.

Why Are Dry Counties Still a Thing?

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We focus a lot here at DrinksReform.org on the many, many inane alcohol laws around the country. But we shouldn’t lose focus of perhaps the most absurd, no-way-this-is-true-in-2019 alcohol rule of them all: There’s still places in America where it is straight up illegal to have booze. Drinks writer Wayne Curtis has a fun piece for The Daily Beast on dry countries:

The population of Beaver County, Oklahoma, is 5,315 and deeply divided. In a vote last year to determine whether alcohol sales should be made legal—it’s been a dry county for more than a century—the wets initially prevailed, voting in legal liquor by a scant five votes. But then the provisional ballots were tallied. And…the prohibitionists carried the day. So Beaver County remains alcohol-free. It is the last and only county in Oklahoma where you can’t buy a legal drink…

“Dry counties” exist as a sort feral anachronism—like phone booths and video stores. They appeared in response to perceived social or economic need, and when those needs dissipated, they were left behind, like flotsam from a flood nobody remembers. We are a nation that’s pretty good at building laws, and pretty lousy at dismantling them.

And so dry counties persist—today an estimated 18 million people are unable to buy a legal drink where they live. Mostly these persist in the south, and a map of dry counties overlaid with one of the Bible Belt, not surprisingly, shows considerable overlap. (Although the penchant for dryness fades as you get closer to the Gulf of Mexico.) The states with the most dry counties are Kentucky, Arkansas and Tennessee. Fact: you can still get arrested for possession of alcohol in some dry counties, as a 69-year-old man in Culliman, Alabama, learned recently…

Read more here.


Congressional bill would eliminate excise tax on Kombucha

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Kombucha traditionally has small amounts of alcohol in it, which can make it a tricky case for federal excise taxes on alcohol if it rises above 0.5% alcohol by volume. A U.S. Senator recently introduced legislation to help protect the drink from these taxes, according to Bend Bulletin:

A measure in Congress would help kombucha manufacturers by eliminating excise taxes on their products that contain more than 0.5% alcohol.

The bill, introduced by U.S. Sen. Ron Wyden, D-Oregon, raises the limit on alcohol by volume for kombucha to 1.25% and makes the product exempt from excise taxes imposed on alcoholic beverages like beer…

Kombucha is a fermented product, created when sugar and yeast are combined. When kombucha is not kept cold, it continues to ferment, raising the alcohol level above 0.5% and making it subject to the excise tax, said Amelia Winslow, director of project management at Kombucha Brewers International, a nonprofit trade association.

“Commercial kombucha producers work hard to control their processes to achieve compliance,” Winslow said. “However, if there are gaps in the cold chain during distribution, authentic kombucha, which is a living food, can go slightly above this 0.5%.”

It doesn’t make sense to tax kombucha for exceeding that threshold, Winslow said…

Read more here.