Two-tier tax a burden for cider producers

Photo credit: 2 Towns Ciderhouse

Filing taxes is never a pleasant task, but for cider producers, the rules are particularly onerous.

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That is because cider makers in Oregon have to comply with a two-tier tax system that means their product is often taxed at the same rate as beer but sometimes also falls under a higher tax bracket paid by wine producers.

As the Oregon cider market grows and small labels proliferate, producers are pushing to ease their tax burden. This is especially the case as cider producers say they have more in common with craft beer makers and should be taxed the same.

“We like to say we have a wine license but a craft beer spirit,” says David Takush, head cidermaker at 2 Towns Ciderhouse in Corvallis.

“Cider is packaged like beer and sold at the same price point. We have a craft beer culture.”

The differing tax rates cider producers pay are based on alcohol content. Cider that has 7% alcohol content or lower is taxed at 8 cents a gallon, the same as beer.

But unlike beer producers, which pay the same state tax on their product regardless of alcohol content, cider above 7% alcohol is taxed like wine at the much higher rate of 67 cents a gallon.

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The higher levy can be an unexpected burden for producers who every now and then get a crop of apples that ferment to produce cider with more than 7% alcohol.

“We have small margins. It can hurt if you are taxed like wine just because the alcohol content is 7.5%,” says Takush.

At the start of 2017, a new federal law, the Cider Act, came into effect that raised the 7% allowable alcohol limit for cider to 8.5%, a move Takush describes as a “big deal” for the industry.

Cider businesses are now pushing for the alcohol ceiling to be raised at the state level.

This may soon be a reality if House Bill 2159 is signed into law. The legislation, which is in committee, would increase the allowable alcohol limit from 7% to 8.5% to align with federal law.

RELATED STORY: Breweries Powerlist 2017

The similar culture cider makers share with craft beer producers is the reason Oregon Business magazine is including cider businesses in our powerlist of breweries.

But an interesting twist is that wineries are increasingly producing their own cider, which is priced at similar levels as bottles of wine.

The market for $20 bottles of cider may be much smaller than the more typical $5 to $7 price points for bottles of cider.

But that is not stopping wineries, which “are getting into the cider business since they have the license already,” says Nick Gunn, president of the Northwest Cider Association.

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