Iowa craft breweries raise a glass to GOP tax law
GLENWOOD, Ia. — A retired teacher, machinist and veteran walk into a taproom.
That’s not the set-up line for a terrible joke. It’s how Keg Creek Brewing started before it burgeoned into southwestern Iowa’s largest craft beer creator.
Nestled in the southern shadow of Omaha, blue ribbon-winning homebrewers John Bueltel, the teacher; Randy Romens, the veteran; and Art Renze, the machinist, set out in 2011 to turn their corner of the Hawkeye state into a must-sample destination for craft beer lovers.
“This a Coors Light, Miller Lite, Bud Light town,” Bueltel said. “We knew that if we put a craft beer brewhouse here with a taproom ... it was gonna go.”
It worked. Starting by brewing a modest 30 to 40 barrels in the back of their self-described “coffee-shop-with-beer” taproom, the brewery finished 2017 by producing roughly 1,500 barrels of craft beer to be distributed across parts of Iowa and Nebraska. Fifteen hundred barrels? That's 372,000 pints of beer.
And now the beer makers have even more reason to raise a glass in appreciation: Keg Creek is one of the roughly 80 local breweries cashing in on a tax break stemming from President Trump's recently passed plan, one that supporters say will allow craft breweries to grow.
It’s a small, albeit mighty, victory, brewing experts say: It rewards the neighborhood brewery by making it just a little bit easier to keep crafting the beer — brown and red ales, in Keg Creek’s case — that Iowans have grown to love.
Under the new “Craft Beverage Modernization and Tax Reform Act,” breweries that make fewer than 2 million barrels annually (read: every brewery in the state) will be taxed $3.50 on the first 60,000 barrels produced each year, half of the $7 barrel tax that brewers saw in previous years. The GOP-backed bill was signed into law last December and went into effect earlier this month.
According to the Brewers Association, Iowa produced 61,232 barrels of craft beer in 2016, meaning every ounce of Iowa-brewery beer would benefit from the 50 percent break. The cut, says the Beer Institute, should create $320 million in economic growth stemming from the industry each year.
If in effect in 2017, the tax break would have saved Keg Creek — which brewed 372,000 pints of beer — about $5,200. The brewery hopes to increase production by 50 percent in 2018, with the best-case-scenario goal of doubling beer produced. That means the savings could potentially reach five digits by year’s end.
It's not an enormous amount cash, some would argue. But, for a group of businessmen who opened their taproom by spending roughly $40,000 and have since expanded into a brewery worth about $500,000, it’s the kind of money that could help transform from being your beloved neighborhood brewery to turning out craft beer poured beyond the state’s borders.
“(These) breweries … if they’re not growing, they’re dying. It is a small-margin industry,” Bueltel said. “This tax has given us more money to continue that growth.”
Where the money could go
Some experts believe the tax break is “a drop in the barrel” for the industry. A study published by the Institute on Taxation and Economic Policy says it will have the biggest impact on breweries producing millions of barrels of beer. Taxes dropped from $18 to $16 a barrel on the first 6 million barrels imported or brewed by businesses turning out more than 2 million barrels annually.
“Eighty-three percent of all beer produced in the United States came from a handful of companies that crank out at least 2 million barrels a year,” the study states.
So, why does it matter? It’s a moral victory, in part — one that shows the government has faith in this type of small, locally curated business, supporters say. J. Wilson, the “minister of Iowa beer” and de facto head of the Iowa Brewers Guild, knows this isn’t the type of tax reform that’s going to magically turn a $5 pint into a $4 pint.
What it is, he said, is a good first step toward permanent reform.
Looking at the reported 2016 production of 61,232 barrels statewide, the tax at that time would’ve saved the Iowa craft beer industry roughly $214,000. Divide that among the number of breweries and business owners, and you're looking at $2,000 here and $4,000 there.
“It’s a whole bunch of really small businesses,” Wilson said. “Nobody's getting paid very well. You do it 'cause you love it.”
“I think, to some extent, it will be a relief ... a little bit of breathing room.”
It could help open the door for industry newcomers, said Tom Swartwood, a Drake University assistant professor of practice in entrepreneurship.
“(It’s) an emotional boost that the (government) is recognizing the potential value of this,” Swartwood said. “It very well could attract more interest; to create more competition and to get more people in there.”
He continued: “We just need more people trying more things to develop a robust economy in any industry.
There is still cold hard cash to be saved — money that could create part-time taproom jobs. In 2016, a year the Brewers Association reported Iowa breweries created $861 million in overall economic impact, the industry employed a total of 1,483 people at Iowa breweries or brewpubs.
Keg Creek could take the savings and invest it in a new brewing tank. A 30-barrel tank costs about $15,000 and, as Bueltel sees it, Keg Creek's brewing facility is at a mere 65 percent capacity. The brewery, with help of fourth co-owner Matt Kirsch, moved the bulk of brewing from the taproom into a new facility last year.
“Just keep reinvesting,” Bueltel said. “That’s our model.”
There’s a part of it, Bueltel argues, that helps fuel the “stick-it-to-the-man” attitude toward the international, major breweries, despite all brewers seeing some benefit to the tax. Each newly opened brewery introduces “Coors Light, Miller Lite, Bud Light” towns to beers such as Keg Creek’s “Wabash Wheat.”
Bueltel jests that he wants to put a bell behind the bar, a la “It’s A Wonderful Life,” and ring it every time a beer lover conforms to craft.
The ringing would prove another chilling sound for mass producers such as Budweiser, which USA Today reported dropped out of America’s three favorite beers in 2017, in part because of craft beer peeling drinkers away from cheap domestics.
But there’s plenty of room to grow. Nationally, craft beer owns roughly 12 percent of the beer market, a number that shrinks to about 6 percent in Iowa. And just 1 percent is brewed in Iowa.
“We are slowly every year taking away a little bit more of their market share,” Bueltel said. “If they’re getting a break on that, that’s probably so much less of their bottom dollar than it is ours.”
A future half-full, or half-empty?
As it stands, the tax is due to sunset in 2019, restoring the $7-per-barrel tax of years past. Wilson said he and the local brewers guild participated in multiple lobbying efforts to ensure this temporary break, which lawmakers met with bipartisan support.
Still, Wilson said, it’s going to take time — time that would benefit from seeing the break extended beyond 2019 — to see the real impact. He and others plan to return to Washington in May to begin lobbying for a permanent cut.
“This is one of those things were you’re excited but you’ve also got to be realistic and manage expectations,” he said.
Until then, breweries such as Keg Creek and the dozens other you can find right down your street will keep chugging toward being more than that little, local brewery.
“It’s been about getting things in place to allow us to grow,” Bueltel said. “We’re just hitting our stride right now.”