$7.2 million biennial preference created an estimated 2 to 6 jobs in
the beverage manufacturing industry. Distributors receive 84% of direct preference
savings, which is 0.17% of their gross income.
December 2020
The preference provides a beer tax exemption for a brewery's first 60,000
barrels sold
Washington imposes a tax on beer sales. Under this preference, breweries that
produce fewer than two million barrels of beer per year are exempt from a
$4.78 per barrel component of the beer tax and instead pay an in-lieu tax of
$1.48. The preference applies to the first 60,000 barrels sold by the brewery.
Beer tax is paid during the first sale of beer. Washington breweries receive
the preference when they sell beer directly to customers or retail locations.
Beer distributors receive the preference when they purchase beer from a U.S.
brewery that annually produces fewer than two million barrels.
The preference was enacted in 1993 and does not have an expiration date.
Washington's beer industry has changed since the preference was enacted in
1993
The Legislature did not state an intent for the preference when it was enacted in
1993. Based on stakeholder testimony, JLARC staff infer the intent was to provide
tax relief to Washington microbreweriesLimited production breweries that typically produce
specialty beers and sell products locally. as the industry emerged
in the state.
In 1993, at least one large brewery in Washington produced more than two million
barrels annually, and the microbrewery industry was emerging according to testimony.
Large breweries left the state by 2003 and today the state has hundreds of smaller
breweries.
Inferred Objective
Results
Provide tax relief to Washington microbreweries as the industry
develops.
Unclear. 423 (89%) of Washington breweries use the preference and
realize 16% of the savings.27 beer distributors use the preference for
sales of beer brewed in-state and out-of-state and realize 84% of the
savings.The preference provides an economic benefit of less than 1% of
beneficiaries' total gross income.
Recommendation
Legislative Auditor's Recommendation: Review and clarify
The Legislature should clarify the beer tax preference by including a
performance statement, identify the intended beneficiaries, and ensure the
preference directly targets those businesses.
The preference was enacted before the Legislature required a performance statement
for new tax preferences. The Legislature should clarify its expectations for the
preference by adding a performance statement that clearly states the public policy
objectives and metrics to determine if the objectives have been met.
The Legislature should review the preference's requirements to ensure that it
supports the intended beneficiaries.
The Commission endorses the Legislative Auditor's recommendation with
comment. Testimony from Washington's Brewers Guild indicates that although most
benefits of the tax are captured directly by distributors, the lower cost to
distributors provides an incentive to distribute the production of Washington's
microbrewers. This amounts to an in-direct tax benefit to brewers. The Guild notes
this is important given the more favorable tax treatment received by Oregon's small
brewers. In the process of reviewing and clarifying this preference, the Legislature
should speak with both distributors and brewers to better understand the business
relationship between the two entities and how the tax differential between
Washington and Oregon impacts the distribution and sale of beer produced in
Washington. This would clarify potential changes to the preference that keep it
within certain federal constitutional tax requirements.
Committee Action to Distribute Report
On December 7, 2020 this report was approved for distribution by the Joint Legislative Audit and Review Committee.
Action to distribute this report does not imply the Committee agrees or disagrees with Legislative Auditor recommendations.
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December 2020
REVIEW Details
1. Beer tax exemption for the first 60,000 barrels sold
Preference exempts beer sales from one component of Washington's
beer tax
This preference provides an exemption from one component of Washington's beer tax for
a brewery's first 60,000 barrels of beer sold each fiscal year. It applies to beer
made by breweries that produce fewer than two million barrels of beer per calendar
year. The preference was enacted in 1993 and does not have an expiration date.
Breweries and distributors using the preference pay a lower beer tax
Each state is responsible for regulating alcohol sales. There are multiple ways beer
can be bought and sold before reaching the final customer.
Breweries: Washington allows breweries to self-distribute their beer to
retailers, sell to distributors, and sell directly to customers from their
breweries.
Distributors: Purchase beer from in-state and out-of-state breweries and
sell to retail locations.
Retailers: Purchase beer from breweries or distributors and sell to the end
customer.
Customers: Purchase beer directly from a brewery or a retail location, such
as a restaurant, bar, or grocery store.
Beer sold in Washington is subject to a beer tax with multiple components: a $1.30
base tax per barrel introduced in 1934; an additional $2 tax imposed in 1989; and
another $4.78 tax imposed in 1993. The combined beer tax totals $8.08 per barrel. This
preference provides an exemption from the $4.78 part of the tax.
Beer taxes are paid on the first sale transaction. The tax is paid by either:
Breweries that self-distribute their beer or sell directly to customers on their
premises, or
Beer distributors that purchase beer directly from in-state or out-of-state
breweries.
The preference provides an exemption from the $4.78 component of the beer tax for a
brewery's first 60,000 barrels sold. Instead of paying the $4.78 part of the
tax, breweries and beer distributors receiving the preference pay an in-lieu tax of
$1.48 per barrel. This means beer sold with the preference is taxed at $3.30 less per
barrel, a 41% reduction from the combined beer tax rate.
Exhibit 1.1: Beer sold with the preference is taxed at a combined rate of $4.78 per
barrel. Beer sold without the preference is taxed at a combined rate of $8.08 per
barrel.
Source: JLARC staff analysis of Washington State Liquor and Cannabis Board
documentation and RCW 66.24.290.
Beer eligible for the preference is taxed at a combined rate of $4.78 per
barrel. This rate applies when all of the following occur:
The first 60,000 barrels of beer sold by a brewery.
Beer produced by a brewery in the United States.
Beer produced by a brewery making fewer than two million barrels in a calendar
year.
Beer not eligible for the preference is taxed at a combined rate of $8.08 per
barrel. This rate applies when any one of the following occur:
Beer produced outside the United States.
Beer produced by a brewery making more than two million barrels in a calendar
year.
Beer that is more than 8% alcohol by weight.
Beer sold by an out-of-state wholesaler.An authorized representative licensed through the Washington
State Liquor and Cannabis Board to sell domestic and foreign beer to Washington
distributors for further sale in the state.
Beer sold by a brewery after it exceeds 60,000 barrels sold in a fiscal year.
A barrel of beer contains two kegs, or 55 six-packs. With the $4.78 exemption under
this preference and the $1.48 in-lieu tax, the $3.30 net tax savings per barrel is
equivalent to six cents per six-pack, or one cent per 12-ounce can of beer.
Exhibit 1.2: The net savings per barrel is equivalent to six cents per six-pack, or
one cent per 12-ounce can of beer
Source: JLARC staff analysis of RCW 66.24.290.
Federal beer taxes also apply to beer sales, as well as Washington sales tax on the
final retail sale.
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Review Details
2. $7.2 million estimated biennial beneficiary savings
The preference provides tax savings for breweries and
distributors that sell beer in Washington
The Legislature did not state its intent when it enacted the
preference in 1993. JLARC staff infer from statements made in committee hearings that
it was intended to provide tax relief to small breweries as the microbrewery industry
emerged in Washington.
Beneficiaries saved $3.4 million in fiscal year
2019
In fiscal year 2019, beneficiaries saved an estimated net $3.4 million with the preference. Of
Washington's 472 breweries, 423 (89%) sold beer with the preference. Breweries that
did not use the preference include those owned by large, controlled interestsA related group of breweries, such as
a parent and subsidiaries. that brewed over two million barrels per
year. Twenty-seven beer distributors also used the preference for beer purchased from
in-state and out-of-state breweries.
Of the beer sold with
the preference in fiscal year 2019, 46% was produced by Washington-based breweries and
sold directly by the brewery or by a distributor. The other 54% of beer was produced
by out-of-state breweries and purchased by beer distributors for sale in
Washington.
Beer distributors realized 84% of the tax savings from the
preference. Washington breweries directly realized 16% of the tax savings.
The
breakdown of tax savings by beneficiary and brewery location in fiscal year 2019
shows:
16% - Washington brewery sales by self-distribution or direct sales to
customers.
30% - Distributor purchases from Washington breweries.
54% - Distributor purchases from out-of-state breweries.
The Legislature did not explicitly state who the preference is intended to benefit.
Testimony from 1993 referred to small, neighborhood-based breweries emerging in the beer
industry. It is unclear if the Legislature intended the preference to benefit beer
distributors and out-of-state breweries.
Beneficiaries estimated to save $7.2
million in the 2021-23 biennium
The estimated net beneficiary savings for the
2021-23 biennium is $7.2 million.
JLARC staff estimated the beneficiary savings
by calculating the amount beneficiaries did not pay due to the $4.78 per barrel beer
tax exemption. That amount was offset by the $1.48 per barrel in-lieu beer tax. The
net beneficiary savings is the difference between the two, at $3.30 per
barrel.
Exhibit 2.1: Estimated net beneficiary savings of $7.2 million in the
2021-23 biennium
Biennium
Fiscal Year
Net Barrels Taxed at Reduced Rate
Beer Tax Not Paid Due to the Preference
In-lieu Beer Tax Paid by Beneficiaries
Net Estimated Beneficiary Savings
2017-19
7/1/17-6/30/19
2018
986,000
$4,717,000
$1,462,000
$3,255,000
2019
1,015,910
$4,858,000
$1,506,000
$3,352,000
2019-21
7/1/19-6/30/20
2020
1,036,228
4,955,000
$1,536,000
$3,419,000
2021
1,056,953
$5,054,000
$1,566,000
$3,488,000
2021-23
7/1/21-6/30/23
2022
1,078,092
$5,156,000
$1,598,000
$3,558,000
2023
1,100,000
$5,258,000
$1,630,000
$3,629,000
2021-23 Biennium
2,178,000
$10,414,000
$3,228,000
$7,187,000
Source: JLARC staff analysis of production and tax payment data provided
from Washington Liquor and Cannabis Board for fiscal years 2002-2019. Future growth
estimated using average growth in production from 2017-2019.
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3. Washington's beer industry has changed since 2001
Washington now has more breweries and produces less beer than in
2001
Washington's beer industry has changed since the Legislature enacted the preference.
Data is not available for state beer production levels prior to 2001. Today, the state
has more breweries that collectively produce less beer than the state's larger
breweries did in 2001.
Annual beer production below 1 million barrels since 2003
In fiscal year 2001 (the earliest year data was available from the Washington Liquor
and Cannabis Board), Washington breweries produced over 7.6 million barrels of beer.
By 2005, large beer producers had left the state and annual production dropped to less
than 300,000 barrels. Annual beer production data indicates a gradual increase in beer
produced by smaller Washington breweries since then.
Exhibit 3.1: Washington beer production declined after large breweries closed in
2003, and gradually increased since
Source: JLARC staff analysis of Washington State Liquor and Cannabis Board
data.
Most Washington breweries are small. 445 of 472 produce less than 30% of the state's
beer.
As of June 30, 2019, Washington had 472 licensed breweries. The majority of these
(336 breweries, or 71%) make fewer than 500 barrels of beer annually. This represents
less than 8% of the state's overall beer production. Washington has 27 breweries that
produce over 5,000 barrels each. These 27 breweries comprise less than 6% of the
breweries, and contribute 71% of the state's beer production.
Exhibit 3.2: In 2019, 27 breweries produced 71% of the state's beer and 445
breweries produced the other 29%
Source: JLARC staff analysis of Washington State Liquor and Cannabis Board Fiscal
Year 2019 production data.
Of the ten states with the most breweries, only Michigan provides beer tax credit
based on production levels
JLARC staff reviewed the top ten states with the most breweries to determine if
others provide preferential beer tax treatment.
Only Michigan provides preferential tax treatment based on brewery production levels.
Michigan's beer excise tax is $6.30 per barrel. Breweries that produce fewer than
50,000 barrels can take a $2.00 per barrel credit against the tax on the first 30,000
barrels produced.
Breweries and distributors receive an economic benefit of 0.13%
of their gross business income
To determine if the preference helps breweries reduce business costs, JLARC staff
calculated the ratio of beer tax savings to gross business
incomeGross income reported to Department of Revenue for
business and occupation and public utility tax purposes. for
Washington microbreweries and distributors.
JLARC staff compared the net beer tax savings of $3.30 per barrel to the total gross
business income for four cohorts of breweries, based on brewery production. The same
analysis was conducted for distributors.
The results indicate that the smallest breweries realize the largest benefit from the
preference. However, the preference likely provides negligible economic benefit. All
brewery cohorts and distributors realize a benefit of less than 1% of their total
gross business income.
Exhibit 4.1: All beneficiaries realize an economic benefit of less than 1%
Benefit Directly Realized By
Ratio of Savings to Gross Business Income at $3.30 Tax Savings
WA breweries < 50 barrel production
0.61%
WA breweries 50-499 barrel production
0.38%
WA breweries 500-4,999 barrel production
0.23%
WA breweries 5,000+ barrel production
0.09%
All distributors
0.17%
All beneficiaries
0.13%
Source: JLARC staff analysis of Washington State Liquor and Cannabis Board
production detail and sales data and confidential Department of Revenue tax return
detail.
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5. Preference likely increased employment in beer industry by 2 to 6 jobs
Economic impact analysis estimates that the $7.2 million biennial
preference likely increased employment in the beverage manufacturing industry by two to
six jobs, and reduced government employment by 25 to 27 jobs
While the preference likely increased the number of jobs in the beverage
manufacturing industry, the overall impact to the state likely was a job loss due to
decreased state and local government employment.
Economic impact model estimated the preference's impact
JLARC staff used an economic modeling tool that predicts future impacts of a change,
such as the removal of a tax preference. The estimated fiscal and employment impacts
described below are based on the assumption that the preference is removed.
The fiscal and employment changes include direct, indirect, and induced changes if
the preference is removed. The model estimates the impact over a 13-year period, from
2018 through 2030.
The economic model JLARC uses accounts for an industry’s labor and capital needs to
estimate employment changes. Brewery industry representatives described brewing as a
capital-intensive industry. Breweries require equipment such as brewhouses, tanks,
filters, and canning or bottling equipment to operate. In contrast, state and local
government is more labor intensive. The model's assumptions for the breakdown of labor
and capital for the "beverage manufacturing" and "state and local government"
industries are shown in the table below.
Factor of Production
Beverage Manufacturing
State and Local Government
Labor
31%
80%
Capital and other tangible inputs
69%
20%
JLARC staff used the model to estimate a range of statewide net fiscal and employment
changes in two ways: 1) breweries would bear the full tax obligation resulting from
repeal of the preference; and 2) customers would bear the full tax obligation
resulting from repeal of the preference. This produced a range of potential impacts.
The model results suggest the preference likely:
Directly supported between two and six beverage manufacturing jobs, depending on
whether the preference reduced consumer prices or production costs.
Reduced state and local government spending, resulting in reductions of between 25
to 27 public sector jobs.
Appendices A and B provide additional detail about the economic modeling tool and analysis.
(1) Any microbrewer or domestic brewery or beer distributor licensed under this title
may sell and deliver beer and strong beer to holders of authorized licenses direct,
but to no other person, other than the board. Any certificate of approval holder
authorized to act as a distributor under RCW 66.24.270 shall pay the taxes imposed by
this section.
(a) Every such brewery or beer distributor shall report all sales to the board
monthly, pursuant to the regulations, and shall pay to the board as an added tax for
the privilege of manufacturing and selling the beer and strong beer within the state a
tax of one dollar and thirty cents per barrel of thirty-one gallons on sales to
licensees within the state and on sales to licensees within the state of bottled and
canned beer, including strong beer, shall pay a tax computed in gallons at the rate of
one dollar and thirty cents per barrel of thirty-one gallons.
(b) Any brewery or beer distributor whose applicable tax payment is not postmarked by
the twentieth day following the month of sale will be assessed a penalty at the rate
of two percent per month or fraction thereof. Beer and strong beer shall be sold by
breweries and distributors in sealed barrels or packages.
(c) The moneys collected under this subsection shall be distributed as follows: (i)
Three-tenths of a percent shall be distributed to border areas under RCW 66.08.195;
and (ii) of the remaining moneys: (A) Twenty percent shall be distributed to counties
in the same manner as under RCW 66.08.200; and (B) eighty percent shall be distributed
to incorporated cities and towns in the same manner as under RCW 66.08.210.
(d) Any licensed retailer authorized to purchase beer from a certificate of approval
holder with a direct shipment endorsement or a brewery or microbrewery shall make
monthly reports to the *liquor control board on beer purchased during the preceding
calendar month in the manner and upon such forms as may be prescribed by the board.
(2) An additional tax is imposed on all beer and strong beer subject to tax under
subsection (1) of this section. The additional tax is equal to two dollars per barrel
of thirty-one gallons. All revenues collected during any month from this additional
tax shall be deposited in the state general fund by the twenty-fifth day of the
following month.
(3)(a) An additional tax is imposed on all beer and strong beer subject to tax under
subsection (1) of this section. The additional tax is equal to ninety-six cents per
barrel of thirty- one gallons through June 30, 1995, two dollars and thirty-nine cents
per barrel of thirty-one gallons for the period July 1, 1995, through June 30, 1997,
and four dollars and seventy-eight cents per barrel of thirty-one gallons thereafter.
(b) The additional tax imposed under this subsection does not apply to the sale of
the first sixty thousand barrels of beer each year by breweries that are entitled to a
reduced rate of tax under 26 U.S.C. Sec. 5051, as existing on July 1, 1993, or such
subsequent date as may be provided by the board by rule consistent with the purposes
of this exemption.
(c) All revenues collected from the additional tax imposed under this subsection (3)
shall be deposited in the state general fund.
(4) An additional tax is imposed on all beer
and strong beer that is subject to tax under subsection (1) of this section that is
in the first sixty thousand barrels of beer and strong beer by breweries that are
entitled to a reduced rate of tax under 26 U.S.C. Sec. 5051, as existing on July 1,
1993, or such subsequent date as may be provided by the board by rule consistent
with the purposes of the exemption under subsection (3)(b) of this section. The
additional tax is equal to one dollar and forty-eight and two-tenths cents per
barrel of thirty-one gallons. By the twenty-fifth day of the following month, three
percent of the revenues collected from this additional tax shall be distributed to
border areas under RCW 66.08.195 and the remaining moneys shall be transferred to
the state general
fund.
(5)(a) From June 1, 2010, through June 30, 2013, an additional tax is imposed on all
beer and strong beer subject to tax under subsection (1) of this section. The
additional tax is equal to fifteen dollars and fifty cents per barrel of thirty-one
gallons. (b) The additional tax imposed under this subsection does not apply to the
sale of the first sixty thousand barrels of beer each year by breweries that are
entitled to a reduced rate of tax under 26 U.S.C. Sec. 5051 of the federal internal
revenue code, as existing on July 1, 1993, or such subsequent date as may be provided
by the board by rule consistent with the purposes of this exemption. (c) All revenues
collected from the additional tax imposed under this subsection shall be deposited in
the state general fund.
(6) The board may make refunds for all taxes paid on beer and strong beer exported
from the state for use outside the state.
(7) The board may require filing with the board of a bond to be approved by it, in
such amount as the board may fix, securing the payment of the tax. If any licensee
fails to pay the tax when due, the board may forthwith suspend or cancel his or her
license until all taxes are paid.
[ 2010 1st sp.s. c 23 § 1301; 2009 c 479 § 43; 2006 c 302 § 7; 2003 c 167 § 5; 1999 c
281 § 14. Prior: 1997 c 451 § 1; 1997 c 321 § 16; 1995 c 232 § 4; 1994 sp.s. c 7 § 902
(Referendum Bill No. 43, approved November 8, 1994); 1993 c 492 § 311; 1989 c 271 §
502; 1983 2nd ex.s. c 3 § 11; 1982 1st ex.s. c 35 § 24; 1981 1st ex.s. c 5 § 16; 1965
ex.s. c 173 § 30; 1933 ex.s. c 62 § 24; RRS § 7306-24.]
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Appendix A: REMI overview
What is REMI?
JLARC staff used Regional Economic Models, Inc.'s (REMI) Tax-PI software (version
2.3.1) to model the economic impacts for the 2020 tax preference review of the beer
tax exemption for microbreweries.
Multiple state governments, private sector consulting firms, and research
universities also use REMI’s dynamic economic modeling to evaluate policy impacts.
Model is tailored to Washington and includes a government sector
Tax-PI is an economic impact tool used to evaluate the fiscal and economic effects
and the demographic impacts of a tax policy change. The software includes various
features that make it particularly useful for analyzing the economic and fiscal
impacts of tax preferences:
REMI staff consulted with staff from the Office of Financial Management (OFM) and
customized a statewide model to reflect Washington's economy.
The model contains 160 industry sectors, based on the North American Industry
Classification System (NAICS) codes.
In contrast to other modeling software, Tax-PI includes state and local government
as a sector. This permits users to see the trade-offs associated with tax policy
changes (e.g., effects on Washington's economy from both increased expenditures by
businesses due to a tax preference, along with decreased spending by government due
to the associated revenue loss).
For current revenue and expenditure data, users can input information to reflect
their state's economic and fiscal situation. This allows JLARC staff to calibrate a
state budget using up-to-date information from the Economic and Revenue Forecast
Council (ERFC) and the Legislative Evaluation and Accountability Program
(LEAP).
The model can forecast economic and revenue impacts multiple years into the
future.
Model simulates the full impact of a tax policy change
The REMI model accounts for the direct, indirect, and induced effects as they spread
through the state's economy, which allows users to simulate the full impact of a tax
policy change over time.
Direct effects are industry specific and capture how a target industry responds to
a particular policy change (e.g., changes in industry employment following a change
in tax policy).
Indirect effects capture employment and spending decisions by businesses in the
targeted industry's supply chain that provide goods and services.
Induced effects capture the in-state spending and consumption habits of employees
in targeted and related industries.
The REMI model produces year-by-year estimates of the total statewide effects of a
tax policy change. Impacts are measured as the difference between a baseline economic
and revenue forecast and the estimated economic and revenue effects after the policy
change.
Model includes economic, demographic, and fiscal variables
The REMI model is a macroeconomic impact model that incorporates aspects of four
major economic modeling approaches: input-output, general equilibrium, econometric,
and new economic geography. The foundation of the model, the inter-industry matrices
found in the input-output models, captures Washington's industry structure and the
transactions between industries. Layered on top of this structure is a complex set of
mathematical equations used to estimate how private industry, consumers, and state and
local governments respond to a policy change over time.
The supply side of the model includes many economic variables representing labor
supply, consumer prices, and capital and energy costs with elasticities for both the
consumer and business sectors.
Regional competitiveness is modeled via imports, exports, and output.
Demographics are modeled using population dynamics (births, deaths, and economic
and retirement migration) and includes cohorts for age, sex, race, and
retirement.
Demographic information informs the model's estimates for economic consumption and
labor supply.
The dynamic aspect comes from the ability to adjust variables over time as
forecasted economic conditions change.
While the model is complex and forecasting involves some degree of uncertainty,
Tax-PI provides a tool for practitioners to simulate how tax policy and the resulting
industry changes effect Washington's economy, population, and fiscal situation.
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Appendix B: REMI analysis
REMI analysis shows range of potential employment and tax revenue
impacts of the beer tax exemption for microbreweries
JLARC staff used REMI’s Tax-PI tool to model two scenarios that illustrate potential
employment effects if the microbrewers tax preference were removed.
This technical appendix provides context and supporting information for the analysis
supporting the results summarized in section 5.
REMI methodology
User inputs in REMI
REMI’s Tax-PI model allows users to estimate the impacts of policy changes to
Washington’s economic activity and government finances (see Appendix A for an overview
of the REMI model).
Before modeling policy scenarios, JLARC staff set parameters by calibrating the
model to the state budget. JLARC staff used the November 2019 revenue estimates
produced by the Economic and Revenue Forecast Council (ERFC) and budgeted expenditures
from the 2019 budget, as reported by the Legislative Evaluation and Accountability
Program (LEAP) Committee. This data provides the budget and revenue data for the model
and serves as the starting point for Tax-PI’s economic and fiscal forecasts.
Users also specify whether government expenditures are determined by demand or
revenue.
"By demand" imposes a level of government spending in future years that is
necessary to maintain the same level of service as the final year in which budget
data is entered.
"By revenue" ties government expenditures to estimated changes in revenue
collections.
JLARC staff modeled the scenarios with expenditures determined by demand. This avoids
assumptions about how policymakers may alter spending priorities in the future. In
addition, current budget allocations are carried forward for each expenditure
category.
In order to best isolate the effects of a hypothetical removal of the tax preference,
JLARC staff modeled the scenarios with the balanced budget restriction option turned
off. The balanced budget restriction forces revenue and expenditures to be equivalent,
and doing so may impose some limitations on economic activity and obscure the effects
of a policy change. Because Tax-PI is a forecasting tool, JLARC staff were unable to
model the employment impacts of the tax preference beginning in 1993, the year the
preference was enacted. Rather, JLARC staff modeled the potential effects of removing
the preference in 2018, the year in which the REMI model used by JLARC staff begins
forecasting.
Data for the REMI model
The REMI model includes historical economic and demographic data from 2001 onward.
The data comes from federal government agencies, such as the U.S. Census Bureau, U.S.
Energy Information Administration, the Bureau of Labor Statistics, and the Bureau of
Economic Analysis. As described above, current revenue and expenditure data for
Washington comes from ERFC and LEAP. The inputs for the two modeled scenarios
described below is based on JLARC staff estimates of future beer production levels and
beneficiary savings.
JLARC staff estimated future production levels for two classes of breweries. The
first class of breweries includes the ten breweries with the highest production in
2019. The second class consists of all other breweries. For both classes, the growth
rate of production for the class was determined by the average annual growth rate over
the previous five years.
Beneficiary industries in REMI
The scenarios described below estimate the economic activity and tax revenue impact
using North American Industry Classification System (NAICS) code 3121, which is
designated for the beverage manufacturing industry. JLARC staff modeled the impact to
the beer brewing industry through the beverage manufacturing industry because
this was the most detailed level of industry classification related to brewing.
The scenarios capture the inter-industry purchases by the beverage manufacturing
industry. The results below focus on the estimated impact to economic development of
Washington’s microbrewery industry, based on the inferred public policy objectives for
this preference.
Modeled scenarios estimate the revenue and employment impact if the tax preference
were removed
To illustrate the potential responses of consumers and beneficiaries and the
associated employment effects, JLARC staff simulated a removal of the tax preference.
The scenarios assume the economic burden of the removal is experienced entirely by
either breweries or consumers:
Scenario 1: Assumes that breweries experience the full economic impact of
the tax preference removal. This model increases the production cost for beverage
manufacturers by the amount of the estimated beneficiary savings.
Scenario 2: Assumes that beer consumers experience the full economic impact
of the tax preference removal. This model increases the cost to consumers by the
amount of the estimated beneficiary savings.
Model forecasts future impacts
The REMI model is a forecasting tool. It estimates change in economic activity and
government revenues based on underlying model data and the budget parameters described
above.
JLARC staff modeled the effects of removing the tax preference effective July 1,
2017. This provides estimates of employment beginning in fiscal year 2018 through
fiscal year 2030.
Scenario 1: The economic burden of the tax preference's removal is borne by the
breweries
To model this scenario, JLARC staff assumed the entire economic burden of the
preference removal is borne by breweries. The approach used the following
parameters:
Loss of beneficiary savings begins the first day of fiscal year 2018 (July 1,
2018), when the tax preference is removed.
Model inputs are estimated by applying an average growth rate over the previous
five years to determine future production, and then determining the share of future
production eligible for the tax preference.
Production costs increase by the sum of the estimate of beneficiary savings for
each fiscal year.
The increased revenue from the removal of the tax preference is spent by state and
local governments.
The estimate increase in production costs (and corresponding increase in government
spending) is shown below ($ in millions):
Year
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Estimated increase in production costs
1.9
2.0
2.2
2.4
2.6
2.8
3.1
3.3
3.6
3.9
4.2
4.6
5.0
Source: JLARC staff analysis of Washington State Liquor and Cannabis Board brewery
production data.
The removal of the preference in this scenario results in:
6.1 jobs lost in the beverage manufacturing industry annually.
19 jobs gained statewide annually, primarily in the public sector. Job gains peak
at 26.5 jobs in 2030, primarily in the state and local government sectors. This
employment increase is driven by the assumption that increased tax revenues would be
spent in the public sector.
Year
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Jobs, beverage manufacturing
-4.1
-4.4
-4.6
-4.9
-5.2
-5.6
-5.9
-6.3
-6.7
-7.1
-7.5
-8.0
-8.5
Jobs, state and local government
18.2
19.2
20.3
21.2
22.3
23.6
25.0
26.4
27.8
29.4
31.1
32.9
34.7
Jobs, other private non-farm
2.3
-0.6
-1.4
-1.7
-1.6
-1.3
-0.8
-0.4
-0.2
0.0
0.2
0.2
0.3
Jobs, total
16.4
14.2
14.2
14.6
15.4
16.7
18.3
19.7
20.9
22.3
23.8
25.1
26.5
Scenario 2: The economic burden of the tax preference's repeal is borne by
consumers
To model this scenario, JLARC staff made the same production and expenditure
assumptions described under scenario 1 and shifted the burden of the loss of the tax
preference from brewers to consumers. This model assumes that consumer costs are
increased by the amount of the beneficiary savings.
The estimated increase in consumer costs (and corresponding increase in government
spending) is shown below ($ in millions):
Year
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Estimated increase in consumer costs
1.9
2.0
2.2
2.4
2.6
2.8
3.1
3.3
3.6
3.9
4.2
4.6
5.0
Source: JLARC staff analysis of Washington State Liquor and Cannabis Board brewery
production data.
The removal of the preference in this scenario results in:
2 jobs lost in the beverage manufacturing industry annually.
34.8 jobs gained statewide annually, primarily in the public sector. Job gains
peak at 47.5 jobs in 2030, driven primarily by employment in state and local
government and private non-farm employment.
Year
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Jobs, beverage manufacturing
-1.5
-1.5
-1.6
-1.7
-1.8
-1.9
-2.0
-2.0
-2.1
-2.2
-2.4
-2.5
-2.6
Jobs, state and local government
18.7
19.9
21.2
22.3
23.5
24.9
26.4
27.8
29.4
31.0
32.9
34.7
36.7
Jobs, other private non-farm
9.0
7.3
7.5
7.8
8.2
8.9
9.6
10.2
10.8
11.4
12.1
12.8
13.5
Jobs, total
26.2
25.6
27.0
28.4
29.9
31.9
34.0
36.0
38.0
40.2
42.6
45.0
47.5
20-07 Final Report | Microbrewers
December 2020
Recommendations & Responses
Legislative Auditor's Recommendation
The Legislative Auditor recommends to review and clarify the
preference
The Legislature should clarify the beer tax preference by including a
performance statement, clarify the intended beneficiaries, and ensure the preference
directly targets those businesses.
The preference was enacted before the Legislature required a performance statement
for new tax preferences. The Legislature should clarify its expectations for the
preference by adding a performance statement that clearly states the public policy
objectives and metrics to determine if the objectives have been met.
The Legislature should review the preference's requirements to ensure that it
supports the intended beneficiaries.
Legislation Required: Yes
Fiscal Impact: Unknown
20-07 Final Report | Microbrewers
December 2020
Recommendations & Responses
Letter from Commission Chair
20-07 Final Report | Microbrewers
December 2020
Recommendations & Responses
Commissioners' Recommendation
The Commission endorses the Legislative Auditor's recommendation with
comment. Testimony from Washington's Brewers Guild indicates that although most
benefits of the tax are captured directly by distributors, the lower cost to
distributors provides an incentive to distribute the production of Washington's
microbrewers. This amounts to an in-direct tax benefit to brewers. The Guild notes
this is important given the more favorable tax treatment received by Oregon's small
brewers. In the process of reviewing and clarifying this preference, the Legislature
should speak with both distributors and brewers to better understand the business
relationship between the two entities and how the tax differential between Washington
and Oregon impacts the distribution and sale of beer produced in Washington. This
would clarify potential changes to the preference that keep it within certain federal
constitutional tax requirements.
