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Hard Cider Treated Like Beer Becomes Endeavor of Senators: Taxes

Hard Cider Treated Like Beer Becomes Endeavor of Senators
Sales of domestically produced cider more than tripled in 2012 from 2007, climbing to $601.5 million, according to IBISWorld, a market research company. Photographer: Jessica Rinaldi/The Boston Globe via Getty Images

Aug. 7 (Bloomberg) -- A good hard cider has a bit of a kick -- and sometimes a tax bite as well.

Cider is taxed at different rates depending on its alcohol and carbon dioxide content, which vary from year-to-year based on weather and small changes in production techniques.

Cider makers are trying to change that. With the help of a few key lawmakers, they are pushing to have the federal excise tax on cider structured more like the tax on beer, which is a steady 22 cents per gallon, Bloomberg BNA reported.

Senator Charles Schumer, a New York Democrat, is leading the effort in the Senate and Representative Earl Blumenauer, a Democrat from Oregon, introduced a bill in the House. Both lawmakers are members of their chambers’ tax-writing committees, potentially in a position to advance the bills.

“Cider is starting to gain traction as an alternative to beer,” said Amy Stinson, corporate legal director for the U.S. and company secretary at Vermont Hard Cider Co. in Middlebury, Vermont. The tax structure “makes it very hard for new cider makers to get into this growing market in America.”

Sales of domestically produced cider more than tripled in 2012 from 2007, climbing to $601.5 million, according to IBISWorld, a market research company. For 2012, cider represented 3.6 percent of the wineries industry, an increase from 1.8 percent in 2007, IBISWorld reported.

The industry’s revival is part of a long recovery from Prohibition, which shut down cider production -- and a dominant drink in America -- in 1919. The industry, dominated by small producers, was slow to recover once Prohibition was repealed, said Schilling Cider Co., a cider maker in Seattle, in a brief history on its website.

Alcohol Scale

One reality remains: The alcohol content of cider is subject to small changes in growing conditions, which determine sugar content in apples, as well as to differences in production techniques.

That can make a big difference in taxes. When the alcohol content is less than 7 percent, the tax is the same as on beer, or 22 cents per gallon for large producers. Small producers receive a discount and pay 17 cents per gallon.

When the alcohol content exceeds 7 percent, cider is taxed as wine, based on a sliding scale that goes as high as $1.07 per gallon for producers making more than 100,000 gallons a year, reported the U.S. Association of Cider Makers, a coalition created by producers in 2013.

Fizz adds to the tax bill. Cider with more than 0.39 percent carbon dioxide is taxed as champagne, bringing the total tax burden to as much as $3.40 per gallon, the cider makers association said.

Clear Intention?

That tax rate is about 15 times higher than what Congress “clearly intended” in setting tax rules for wine and related beverages, Blumenauer said in a news release.

Blumenauer introduced the Cider Industry Deserves Equal Regulation Act with Republican Representative Chris Collins from New York on Aug. 2, to equalize the tax and extend the rules to pear cider, also known as perry. Their bill would amend tax code Section 5041 to redefine hard cider.

Schumer in March endorsed a similar approach. In both his plan and Blumenauer’s bill, the amount of alcohol by volume that cider can contain -- and still be labeled and taxed as cider -- would increase to 8.5 percent.

As members of the House Ways and Means and Senate Finance committees, the lawmakers are in position to press their agenda, although Capitol Hill jockeying over comprehensive tax reform has clouded prospects for special-interest tax bills.

As challenging as adverse growing conditions can be, they illustrate one appeal of cider production. Apples eaten by hand need to look good, for most consumers. Apples that have been damaged by frost or are otherwise unappealing to the eye are fine for cider, Schumer’s office said.

New York ranks second in the nation, behind Washington, in apple production, according to the Department of Agriculture. The legislation would benefit more than 20 cider producers that popped up in the state as the industry expands, Schumer said.

To contact the editor responsible for this story: Cesca Antonelli at fantonelli@bloomberg.net

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