B.C. craft brewers want the provincial government to change how they are taxed because they say big brewers are getting unfair tax breaks.
They are bringing up their grievance with the British Columbia Liquor Distribution Branch's mark-up system now because the BCLDB has a new minister in charge, Lana Popham. The past five years has also ushered in a much tougher economic environment in which to operate, they say. That has forced many to close.
"We face escalating costs and steep taxes that punish our success," Main Street Brewing operating partner Cameron Forsyth told reporters Thursday morning at his Vancouver brewery.
"Since 2020, inflation, supply chain disruptions, rising ingredient costs and tariffs have made it harder and harder to stay afloat. And while multinationals absorb these costs easily, often with the help of taxpayer subsidies, small local breweries like ours are left fighting for survival."
Ken Beattie, executive director of the BC Craft Brewers Guild, told BIV the province had about 240 craft breweries a year ago. About 20 of those breweries have since closed, he said.
Pre-pandemic the sector went through a renaissance of sorts, with steady growth each year since the aught years, he said.
Summer is also peak season for breweries' sales, which is another reason why brewers want government change to happen now.
"We need this to happen when the sun is shining and we are able to squirrel away our nuts so that we can take care of things when the doldrums are here," said Forsyth, who opened his brewery in 2014 and employs about 20 people.
He estimated that in the past week, he has had to pay the BCLDB $6,000 in mark-up fees. Under the BC Craft Brewers Guild proposal, that payment would have been $1,500, he said.
The BCLDB emailed BIV a statement saying "we recognize the concerns raised by the BC Craft Brewers Guild and remain committed to reviewing the current beer mark-up structure."
It said that it had initiated a review last year but that was "paused to enable the [BCLDB] to prioritize urgent policy work in support of the provincial response to U.S. tariffs."
The crux of what the brewers want is lower mark-up fees on initial tiers of production volume and higher fees for breweries that produce large beer volumes.
Beattie sent BIV a mark-up, or tax, schedule that shows that a craft brewery must pay $0.40 per litre on each of the first 15,000 hectolitres of beer.
A hectolitre of beer is 100 litres in volume.
There are then many thresholds. If a brewery brews up to 16,000 hectolitres, the rate for the entire production rises to $0.41 per litre. Increments rise with the top tier being $1.08 per litre for the entire production run if volume rises to 350,000 hectolitres. After that volume, a brewery can brew an unlimited amount and still only pay the $1.08-per-litre rate, Beattie said.
His desired system would be that small craft brewers who make up to 2,000 hectolitres would only pay $0.10 per litre as a mark-up, or tax. Rates then slowly increase in increments. The highest end of the scale would be $1.14 per litre for brewers who make more than 500,000 hectolitres, he said.
A separate beef is that Beattie said big brewers also get a subsidy on the first 50,000 hectolitres that they produce. Instead of paying the full $1.08 per litre on those sales, the B.C. government allows the big brewers that produce more than 350,000 litres to only pay $0.48 per litre on the first 50,000 hectolitres produced.
The result is that it is possible for a craft brewer to pay a higher per-litre mark-up than a big brewer, Beattie said.
The BCLDB said that subsidies to large brewers were introduced in 2015 and "reflect the positive economic contribution these breweries make to the province, including the jobs they support though local production."
Industry observer Mark Hicken, who in 2017 was the Ministry of Attorney General's liquor policy advisor on potential changes to liquor laws and regulations, told BIV that businesses in the province's liquor industry have long had quibbles about the way B.C.'s mark-up system works.
"There's always a desire on behalf of businesses to pay lower taxes, and the liquor and hospitality industry is no different," he said.
Any changes would need to be revenue neutral in order for government to even take a look at changing things, he said.
Brewers, distilleries have other issues with government mark-ups
Manufacturers of beers and spirits have other gripes with the B.C. government related to how they are taxed.
Barnside Brewing Co. general manager Ken Malenstyn told BIV this morning that he grows grain and hops on about 800 hectares in Delta but he gets no special treatment for using his own B.C.-made products. In contrast, were he to grow grapes for his own estate winery, he would be eligible for tax breaks. He said he does not think that is fair.
Here is how the system works for B.C. wineries:
The first subsidy system for B.C. wineries that meet standards to be classified as land-based wineries comes when they sell wine made 100 per cent from B.C. grapes directly to customers, or to wine stores or restaurants. They are then eligible for a discount that equates to the full value of what the BCLDB would charge as a mark-up on their wines.
If a winery were to price its B.C. wine at $15 and sell it to the BCLDB, the BCLDB would charge a mark-up equivalent to 89 per cent on the first $11.75 per litre of value, and 27 per cent on the remainder.
The mark-up would work out to $9.51 on this 750-mililitre bottle.
The result would be a $24.51 wholesale price.
A winery that sells direct to customers, restaurants or stores would be able to pocket $9.51 for each bottle sold through that channel.
The second kickback system is for when these wineries sell wines to the BCLDB to resell. The winery is eligible for a 50-per-cent discount on its supplier price or $7.50 on that $15 bottle of wine, which had a $24.51 wholesale price, Hicken told BIV last year.
Spirit manufacturers also have gripes with the government about government taxation.
For one thing, government mark-ups, or taxes, on spirits are higher than they are for wine.
Another beef is that craft distillers have a production limit that they must stay below to gain some tax advantages. Wineries do not have that restriction. Finally, distilleries do not get the financial kickbacks, or reimbursements, that wineries get when they sell products in government-run liquor stores.
