The following are two full interviews from our Final Word article in the April/May issue of Mutineer Magazine with Deschutes owner Gary Fish and the other being with Representative Ben Cannon’s office.
Gary Fish-Owner Deschutes Brewery
Alan Kropf: What do you think about the Oregon beer tax?
Gary Fish: If it was a one hundred percent increase people would think that was ridiculous; this is a two thousand percent increase, it’s hard to even comment on something that is so outrageous. They [legislature] have know idea how the private sector actually operates and they think this won’t hurt when it’s going to hurt a lot.
From talking to them there is going to be some sort of middle ground. Is that the feeling you get?
Okay, so what does middle ground mean? It’s only going to be one thousand percent increase. Again that’s just completely absurd. I have listened to what Rep. Cannon has to say and he has no idea how the private sector works and he thinks this won’t hurt anybody. He wants to make the beer industry responsible for the Meth problem in Oregon. I just think those things are completely outrageous. They should be repealing the excise tax to encourage this industry that has meant so much to Oregon. Not trying to increase it in a way that will damage if not destroy this industry.
Based on the information you have is the beer industry afraid. Is this a real threat?
Of course it’s real threat. How can you take it as anything else? These people want to destroy the beer industry. They may not think they are doing that, and that may not be their intent, but for them to suggest that they could do this without damaging the industry here in Oregon is just not reality.
What steps is the beer industry taking to respond to this?
Well, I can tell you what we are doing. The small brewers in Oregon are trying to tell their story. We are trying to explain exactly what would happen, we will show them the books as far as what this will mean. They don’t want to hear it. They don’t want to recognize what’s going on. They think that simply because the tax hasn’t been raised in a while and it is one of the more reasonable in the country that therefore we should raise it. The state has big problems, big budgetary problems but solving one problem by creating another is not doing your job when you are in the legislature.
If this were to go through at two thousand percent or one thousand percent or whatever, what would be the impact on the Deschutes Brewery?
Our total State Excise Tax for the State of Oregon for this year is going to run about $220,000. That tax would go to about $4.5 million. If that doesn’t give a perspective on it I don’t know what would.
How would you have to make up for that revenue?
We would raise prices, we would have to, we don’t have that money. We could not absorb even a portion of that so we would raise prices. Now, what Rep. Cannon continues to say that what we are lying about is that the pricing gets increased through the system. Even if we don’t take any margin on that, and quite frankly some would think we would be entitled to, say we don’t and we sell it to a distributor who works on a 30% margin. That’s why the high-end market has grown in Oregon because they make more money on it. They sell it to a retailer and if it’s a grocery store they take a 30% margin on it too. If it is a keg of beer and they sell it to a tavern the tavern may take a 70% mark-up on it. They [legislature] are in complete denial about this; they think that it is fifteen cents a drink and it is nothing close.
How do they come up with that number?
They divide forty-nine dollars a barrel by the number of twelve-ounce servings in a barrel and they come up with fifteen cents, it’s all marketing.
So this additional expense is absorbed one hundred percent by the brewery at the production level?
Yes, it’s assessed on the brewery. It’s not a sales tax. We don’t have sales tax in Oregon, which is another part of their misinformation campaign. They are saying that Oregon has the lowest excise tax in the nation and that is because they are calculating it with a sales tax and we don’t have a sales tax. We are not the lowest in the nation; we are among the eight lowest in the nation. I can give you the names of the other states; I have a Center for Science in the Public Interest report right in front of me and they aren’t exactly a friend of the alcohol business and it’s clear what they say is the lowest. They have a big hole in the budget and they want to raise money. Several of these representatives have been trying to hit the beer industry for a long time. They have a bone to pick with somebody and I’m not even sure who it is, but they come at the beer industry every single session and I spend a lot of my time in Salem trying to fight these things off, and that is the reality we live with here in Oregon. They don’t seem to place any value on the few industries in this current economy that is actually working in Oregon. It’s actually employing people, paying taxes and doing good for the community. We all built our businesses to be clean, green, community involved and doing the right kinds of things because that is the Oregon way. Yet the Oregon legislature will spend millions of dollars on Hollywood to attract movies and TV shows to be filmed in Oregon so they can send the money back to California, not that California doesn’t need it. As we have written several times, twenty-five years ago we said in twenty-five years we were going to develop an industry that will employ over 5,000 people with family wage jobs with benefits that is clean, green, community involved and that pays tens of millions of dollars in taxes. How much of an incentive would the state provide to attract that kind of an opportunity? And yet we are not asking for anything, we are just asking not to be hurt. That just falls on deaf ears in places like Rep. Cannon’s office and Dingfelder’s and Morrisette. These guys do this every two years.
Do you have any allies at the legislative level?
Sure we have some, but everything is a party system. One party controls everything there and if they decide that they want to do something it’s hard for members of their party to object. I don’t want to make this a partisan thing, but we have a few from their side, they have a few from our side. It’s a very close call right now.
There are a few more months before this will move forward, right?
They can’t adjourn until they have a balanced budget, so they have a big problem to try and solve and if they can’t solve it through us they will try and solve it some other way. And rather than do the hard work and try to spread the load over the entire state or the citizenry they prefer to target specific industries like ours to carry a big bulk of the load, as if we haven’t been doing that. Some of the things they say are, “You have been getting away with this for a long time,” and we haven’t gotten away with anything. We pay the same taxes as every other business plus we pay excise taxes to the state. Yet they want to make us responsible for all of societies ills. Oregon doesn’t have a sales tax and this is why nobody wants a sales tax because once they get it they will continue to raise it over and over again. It’s like if it hasn’t been raised in a while let’s raise it. This is why taxpayers revolt.
With such as scare over the economy right now do you think that is enough of a backdrop for this to succeed?
I think it is as much a reason for it to fail. When you have economic conditions like this and in Oregon we have unemployment rates well over ten percent is this the time you want to lose more jobs through a policy decision like this? Do you really want to do damage to an industry that is still able to operate in this kind of economic environment? That’s part of the message we are trying to get across. You can’t solve one problem by creating another and think you’ve done your job.
Staff from Rep Cannon’s office
Staff: The Oregon beer tax hasn’t been increased since 1977. We have had basically less than one cent or about a penny a pint. We also don’t pay sales tax in Oregon and if you include sales tax in the equation we have the lowest tax on beer; we pay the least tax of anyone on a pint of beer in the nation. Since 1977 every legislative session we get together and have the beer tax conversation. We have never had success so it just disappears.
In Oregon we have three levels before a beer will get to consumers; the brewer, a distributor, then a retailer. We decided to choose the amount based on the need for addiction both to alcohol and drugs for prevention and treatment. We put together what it would cost with a dedicated revenue source to support a functional addiction treatment and prevention program for Oregon. We went for a needs based amount because we know no matter what we say the beer tax needs to be, the beer tax lobby will come and tell us that it is ridiculous. We also knew that the bill wouldn’t pass without significant amendments. Even when the craft brewers in Oregon were exempted they were the primary force against an increased tax. We figured why not start somewhere simple that will fund addiction treatment. We love craft brewers and we don’t want to hurt them, but we wanted a simple place to start the conversation.
Alan Kropf: So this money would pay for all addiction services and rehab?
It would be a dedicated funding source.
Why are you looking to beer as opposed to wine or spirits?
We have the Oregon Liquor Control Commission (OLCC). We have state owned liquor stores and someone has a contract with the state and makes a commission for sales but the vast majority of revenue of liquor sales goes to the OLCC which goes to the general fund which we use to fund education, public safety and various other programs. Just over fifty percent of the OLCC money goes there and the rest goes to mental health services or to county and cities for addiction related services. Because the OLCC is set up the way we don’t have a liquor tax but we do have the third highest liquor prices in the country. So we pay pretty high liquor taxes so we didn’t want to raise those at all. The wine tax is about the national average about five cents for a glass of wine. When we talked to the advocates that have been dealing with this over the years and said we wanted to include wine they were committed to just having the conversation be about the beer tax because it hasn’t been raised since 1977 and because we don’t have a sales tax it is the lowest in the nation, if you include sales tax. The advocates encouraged us to just include beer and keep the bill very simple and not have a variety of exemptions, which we have done before. My boss was quoted in the Oregonian saying that he would be interested in talking about increasing the wine tax as well. This bill is just a starting place for a conversation. We are willing to talk when the time comes about various things such as the wine tax.
Do you feel that the industry is on the same page with you in terms of seeing that whether or not they agree with the plan that you have put together that something needs to be done and that they are going to work with you to find a solution everyone can buy into?
We have had conversations with the craft brewers collectively with the Oregon Brewers Guild and it’s a little bit of an interesting situation. The relationship with the distributors is something they really value. The distributors are very powerful and they don’t want to see the beer tax increase. Neither do the Anheuser-Busch’s and Coor’s of the world who have these great relationships with the distributors. Even if we exempt the craft brewers, part of the reason they aren’t willing to talk about it is that the distributors are really close to the bigger brewers that import the beer and sell the most beer in Oregon and if we anger these distributors who have a monopoly then that would be dangerous for their business because they have benefited from having a very harmonious relationship with them. We have had something like nine ballot measures to have a sales tax and all of them have failed. In response to the CNN story about increasing the beer tax we had many people call us and say we should increase it by a lesser amount or exempt the craft brewers to which we say yes let’s have that conversation. It seems like what we have is a decent public will in Oregon to increase the beer tax. Is twenty cents a pint the magic number maybe not but we are looking forward to having the conversation when the time comes about what might be the right amount and how we might enact the tax where it is most beneficial for our craft brewers who we are very interested in protecting.
So for the people that only saw that CNN article what would you like to clear up about this issue?
I think the primary thing that frustrated us was the numbers being thrown around. There were these numbers saying this will increase the cost of a pint by two dollars. The number we have settled on, just to be fair, from the Brewers Guild is that the price of a pint would increase by a dollar twenty-five. How does a twenty-cent excise tax become a dollar twenty-five markup? That is something that needs to be talked about because isn’t that a 625% mark-up that goes to line the pockets of distributors and retailers? We support our small businesses our retailers and we support our craft brewers. But it’s also 625% from the point of leaving the craft brewer to getting into the hands of the consumer. That seams like a really steep mark-up. When we question them on that and say a dollar twenty-five more a pint isn’t that a 625% mark-up on the product? There response is no it’s just a twenty or thirty percent mark-up. That looks a lot different, that is not a dollar twenty-five more a pint or two to four dollars more a pint or whatever crazy numbers we have heard thrown out there. It’s more like thirty cents a pint. I think it is wrong to profit off of a tax, to increase your profit because of a tax increase, which is what the distributors and retailers are telling the brewers they will do. We also have some ideas to change the point at which the taxes are levied. We have a list of great ideas one of them involves looking at where the point of taxation is and can we change it from the brewer and put it on the distributor. A point of sale system would be awesome but we don’t have one set up because we don’t have a sales tax and that would be a pretty expensive and large project and that might be very scary to a state that is very sales tax averse. That would be the number one thing that I would want to clear up would be the exact mark-up of the tax. We have had emails from people that have said this is such a bad idea having an extra dollar twenty-five a pint is a problem, what about fifteen or twenty cents more and that is what we are talking about. That has kind of been an ongoing back and forth between the brewers and us on that point.
Where is this at in the overall process and where does it end?
Oregon has bi-annual sessions and they usually last about six months and we are just finishing up our second month of session and had a two-day hearing on the beer tax bill last week. There are four different revenue pieces on the roadmap for the house and senate democrats and those need to be passed before they will look at anything on the list that was created last fall. We are told that something on the beer tax will occur. We are facing an unprecedented budget shortfall here in Oregon and will have to end up cutting twenty percent from the last two years budget and this is common across the country. We can expect it to happen May and it will pass or not pass and we will know by June.
If this passes with amendments is it going to have a negative effect on Oregon beer or beer culture?
We have said that we wanted to protect the craft brewer, we want to do this in a way that protects you. I would be really surprised if it takes place without measure to protect Oregon brewers. The lobbyist for the distributors will tell you that it is unconstitutional to exempt the Oregon brewers but what about doing it on the amount of product the brewer produces regardless of where they are located. We could be protecting craft brewers from all across the country. Our number one priority is to create funding for addiction treatment but almost a co-priority would be protecting Oregon breweries as well.