Boston Globe: Big seller Boston Beer asks for small-brewer tax break
media mentionBy Noah Bierman
| Globe Staff
May 13, 2013
WASHINGTON — It’s early to be drinking, but just after 10:30 a.m. on a weekday, Jim Koch, the founder of Samuel Adams beer, pops open a bottle of lager and regales his audience with stories.
It’s no barroom banter. Koch is standing behind a lectern at a small-business convention in a Washington conference room, describing his battles on the front lines of special-interest tax lobbying on Capitol Hill.
Koch tells the conventioneers how he is trying to persuade Congress to grant an excise tax break for his brewery, and others much smaller. The break would cost Americans about $4.75 million a year in lost taxes from his Boston Beer Co. alone.
It may seem odd that the fabled beer company is joining forces with the loafered lobbyists of K Street in a bid for business tax breaks. But it reflects a little-known aspect of the Sam Adams brand, a more literal connection to the tax protester for whom the company is named.
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That philosophy is evident in Koch’s unconventional argument: That his company — which had more than $600 million in sales in 2012, exports to 30 foreign countries, and is traded on the New York Stock Exchange — should, for tax purposes, still be considered a small craft brewer.
“We’re sort of like the jumbo shrimp,” Koch asserted in an interview.
At the heart of the company’s Washington strategy is an attempt to persuade Congress to expand the size of “small brewers’’ who can qualify for a discounted excise tax on beer sales, seeking to raise the current limit from brewers who produce 2 million barrels a year to those who produce 6 million barrels.
Under current law, brewers producing more than 2 million barrels pay the full $18 tax on every barrel they make. Because Boston Beer sells in the vicinity of 2.7 million barrels a year, it finds itself in the large-brewer category.
The legislation that Koch is pushing would not only expand who qualifies for the excise tax discount, it would also enlarge the break itself — which has helped draw legions of small-time brewers to the cause. Qualifying brewers would pay $3.50 per barrel on their first 60,000 barrels, or half of what they currently pay, and then $16 per barrel after that, up to 2 million barrels.
A key component of the public-relations and lobbying campaign has been to make sure that Sam Adams — despite its considerable size, with 1 percent of the American beer market — is still viewed by the public, politicians, and even the craft-brewing industry as a “craft beer’’ manufacturer.
It is a subject that could inspire hours of debate at a pub, especially among beer nerds who can write treatises defending their favorite triple IPAs, stouts, and black lagers.
For Boston Beer, Koch said, the point is to be able to compete with the huge beer companies that dominate the market.
“The fundamental issue is, there’s a difference between Sam Adams and Bud and MillerCoors,” he said.
But the measure to raise the limit for qualifying companies has also raised some eyebrows.
“I was just struck by the fact that Boston Beer is involved in this, in any discussion of quote, craft beer,” said Matthew Gardner, executive director of the Institute on Taxation and Economic Policy, a liberal think tank. “Boston Beer sure acts an awful lot like a conventional large corporation.”
That includes flexing its industry muscle. In January 2011, the Brewers Association, the trade group on whose board Koch recently sat, changed its definition to accommodate Boston Beer, allowing up to 6 million barrels annually to qualify as “craft,’’ rather than 2 million, the old threshold that had been set to match the federal definition for small beer.
“They wanted to take care of Jim and make sure he was considered a craft brewer, because he was on the board and he’s been such a leader,” said Harry Schuhmacher, editor and publisher of Beer Business Daily, which covers the industry.
Koch has a different explanation; he said there was huge support because members felt it would be “crazy to kick the pioneers out of our industry” based on their success.
He prefers brewing to lobbying, he said, but must lobby to protect himself and small brewers from the market dominance of Anheuser-Busch InBev and MillerCoors, who together control more than 80 percent of the beer market.
Boston Beer spent $165,000 on federal lobbying last year and $185,000 in 2011, up from just $10,000 in 2008, according to the Center for Responsive Politics. The Brewers Association spent $354,000 in federal lobbying last year, a large rise for a group that spent no money in 2007. Boston Beer employees have also given at least $90,000 to federal candidates since 1997, according to Federal Election Commission data.
Though Koch’s lobbying expenses are still relatively modest by industry standards, his easy charm and the compelling story of his company have opened doors for him on Capitol Hill. On a recent Sunday, he said, Senator Rob Portman, the Republican from Ohio, called to give Koch his home number because he wanted to see if he could help. The bill had 175 sponsors in the House last session and 43 in the Senate.
“What I’ve learned is politicians are not the enemy,” Koch told the audience at the Omni Shoreham Hotel ballroom in Washington last week during the small business convention. “They are actually all very reasonable people, bright people.”
A beer-industry analysis by Harvard economist John N. Friedman estimated the excise tax cut would create 5,000 jobs within 18 months, though not necessarily in the beer industry. It is based on a more general beer-stimulus theory — the idea that money in the hands of consumers and brewers would flow back into the economy.
The industry estimates the tax break would cost the federal government $67 million a year, which Koch argues is a relatively small hit on the federal budget.
The Democratic sponsor of the Small BREW Act, Representative Richard E. Neal of Springfield, who sits on the powerful House Ways and Means committee, held an event with Koch at Barrington Brewery & Restaurant earlier this year in Great Barrington. Neal issued a press release calling the tax relief bill a jobs measure.
In an interview, he acknowledged that he has “always rejected theology that tax cuts pay for themselves.” But “there are some tax cuts that are better than others,” including this one, he said, arguing that it would help the flourishing small brewers in Western Massachusetts expand.
Neal said the bill was not written specifically to benefit Boston Beer. But he argues that the company is “tiny, when competing with the international” giants that control the industry.
But even as Koch has rallied craft brewers, he faces significant obstacles.
Anheuser-Busch InBev, MillerCoors, and the Beer Institute, a competing lobby seen as more closely linked to the large brewers, dwarf the craft brewers’ lobbying and are seeking a different set of tax breaks, which would cut the excise tax by 50 percent for all beer companies. The Beer Institute’s bill would not alter the definition of small brewers to include Boston Beer, but it would eliminate the excise tax completely for much smaller breweries, those making fewer than 15,000 barrels a year.
“We’ve always supported additional tax relief” for small brewers, said Christopher Thorne, vice president of communications for the Beer Institute.
“But it should go to those small brewers who genuinely need those pathways to the marketplace,” he added, without mentioning specific breweries.
(Koch said he would save $30 million under the Beer Institute proposal, proof, he argues, that his intentions are to help small brewers by siding with their tax relief plan.)
There are also beer aficionados who question whether Boston Beer, which now sells Twisted Tea, popular among novice drinkers at college keg parties, can really be called a craft beer anymore.
“Everyone here will probably say no,” said Danielle Robidoux, a 24-year-old server at the Publick House, a craft beer pub in Brookline that does not include Sam Adams on its voluminous beer menu. “The bigger something gets, the more it’s going to lose that kind of magic.”
Noah Bierman can be reached at [email protected]. Follow him on Twitter @noahbierman.