As the owner of a craft distillery and the president of the Maryland Distiller’s Guild, I know how devastating an increase in alcohol taxes can be for small businesses like mine — especially as we are one of the hardest hit industries during COVID-19.
While headlines have focused on increased sales at liquor stores as people sheltered at home, this does not accurately portray the severe impact of the pandemic on the overwhelming majority of the hospitality industry — particularly as it relates to small-batch, locally-made alcohol. Maryland’s once bustling craft distilleries, breweries and wineries have had their tasting rooms and tours shut down for months due to the pandemic. Additionally, all of the local events and festivals where we would normally showcase and sell our craft products have also been canceled.
According to a study by the Distilled Spirits Council, the crushing impact of the COVID-19 pandemic on craft distillers reveals that on average 41% of their sales evaporated and 31% of their employees have been furloughed.
Given the extreme challenges that many Maryland hospitality businesses are dealing with, it came as a shock to hear that some state legislators are calling for yet another tax increase on alcohol by raising the sales tax from 9% to 10%.
It’s hard to imagine a worse time to discuss increasing taxes on alcohol in Maryland.
Restaurants, bars and craft producers throughout the state are struggling and full recovery is a long way off. It will take even longer for these businesses to rebound if they are hit with a tax increase just as they begin to regain their footing.
I speak on behalf of Maryland’s alcohol producers — the hundreds of distillers, brewers and winemakers — who have shuttered their doors for months on end. We are working tirelessly to adapt and change business models based on state regulations in light of COVID-19, and still had to lay off large percentages of employees. My distillery, along with a vast majority of distilleries in Maryland, switched operations overnight to manufacture hand sanitizer for our first responders, partially with the generous donations of wine and beer from our fellow alcohol producers.
In many ways, we have proven we are here for the community — and while we support the use of state dollars to address health care disparities, we respectfully request that we not be the industry to shoulder this burden. The last time Maryland raised taxes on alcohol, the result was a 4% decline in alcohol sales statewide. As we strive to rebuild our businesses, the last thing we need is a deterrent to consumer spending.
The General Assembly should focus on ways to continue supporting the hospitality industry — as our distilleries, breweries, wineries, restaurants and bars work to rebuild and rehire employees — not cause further damage to an already decimated industry through increased taxes. While partial reopenings, outdoor dining and carry out orders have helped, the revenue produced from these sales pale in comparison to pre-pandemic levels. As it stands, the Restaurant Association of Maryland predicts up to 40% of Maryland restaurants may close permanently because of the pandemic.
To be clear, alcohol is already taxed twice in Maryland, at the production level (excise tax) and at the point of sale — at a rate of 9% — that is 50% higher than the 6% rate applied to other retail items, but also significantly higher than that of neighboring states.
Furthermore, the Craft Beverage Modernization and Tax Reform Act, which makes permanent a federal excise tax reduction enacted in 2017, is set to expire this December unless Congress acts fast.
Small distillers, brewers and winemakers across state have used the tax savings to make significant investments in their businesses, hire new workers and support their local communities.
Without congressional approval, at the start of the new year craft distillers will be hit with a significant hike in their federal excise taxes from $2.70 per proof gallon to $13.50 per proof gallon.
Following an incredibly challenging year, a 400% excise tax increase on distillers will certainly thwart any chance at recovery, and discourage future growth of this industry, both in Maryland and across the country.
I am proud to have spent my life building a career in the hospitality industry — my fellow distillers, restaurateurs and hotel workers are among the most innovative, resilient and determined people I know. This is an industry that demands hard work, relentless effort and the ability to adapt to ever-changing trends and environments. I am confident it will survive, and eventually come back to thrive. But it cannot, and should not, be required to sustain additional stresses and shoulder the burden of a tax increase.
Jaime Windon (email@example.com) is CEO and founder of LYON RUM // Windon Distilling Company and president of the Maryland Distillers Guild.