Case Study

photo-yazooLinus Hall, the soft-spoken Nashville proprietor who has built a rabid customer following for his Yazoo Brewing Co. with a combination of admired craft beers and savvy business sense, still hasn’t quite mastered logic of Tennessee antiquated beer-tax structure.

If he sells more beer, he’ll have to pay more in beer taxes.

If he sells less beer, he’ll have to pay more in taxes too—especially if prices go up, which they undoubtedly will.

That happens because Tennessee’s beer-structure is based on both volume and on price. So even if Yazoo’s sales volume declines, rises in barley, hops or glass prices could push up his prices, and Tennessee’s 17 percent wholesale tax could push up his tax bill.

In fact, even as Tennessee beer consumption has dropped, the tax revenues from beer have actually continued to rise. From 1999 to 2010, beer sales have fallen five percent, but the revenue has climbed to 32 percent, according to state figures.

In that time, Tennessee passed Alaska in 2008 to become the state with the highest beer taxes in the country, be that beer a Budweiser from St. Louis, a Heineken from Holland or a Yazoo Pale Ale from downtown Nashville.

For nearly six decades, Tennessee’s beer wholesalers and distributors have operated under a beer-tax system in which a portion of the tax is based on volume, and another portion is based the beer’s price.

Hall shakes his head at the crazy effect that the wholesale tax has on his business.

“We want to contribute our fair share,” said Yazoo’s Hall. “But we respectfully believe that government should get more tax revenue as a result of businesses selling more, not because we have to adjust our prices due to, say, rising barley and glass prices.”

It’s tough enough, Hall says, to have the country’s highest effective beer tax at $37 a barrel, particularly when competitors and customers enjoy a comparative tax advantage just over the state line.

In Virginia, for example, it’s $8.69. In North Carolina, $19.13. Alabama is third-highest in the country at $32.65, while Missouri is the lowest at $1.86.

Tennessee and Kentucky are the only states that have a beer tax that is based on volume and on price, but Kentucky’s rates are far lower, putting its effective rate at $23.96.

It’s tough, but he and Tennessee’s distributors, wholesalers and breweries recognize that the cities and counties that depend on the proceeds from the local wholesale tax have long factored those dollars into their local budgets.

Still he strongly believes the Tennessee Beer Tax Reform Act of 2013 would put an end the ever-upward climb of beer-tax liabilities, a climb that defies the actual volume of beer he sells and continues to put his popular products at the mercy of antiquated tax arithmetic.

“We need to fix this,” said Hall, “because the effect that it is having on our business is just perverse.”

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