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Craft distillers, retailers wait anxiously for tax extenders

Stakeholders predict layoffs, hiring freezes if deal is not struck by end of year

Rep. Denver Riggleman says it would be “disastrous” for his wife’s Virginia distillery if a 2017 provision that cut excise taxes is not extended past its Dec. 31 expiration date. (Bill Clark/CQ Roll Call file photo)
Rep. Denver Riggleman says it would be “disastrous” for his wife’s Virginia distillery if a 2017 provision that cut excise taxes is not extended past its Dec. 31 expiration date. (Bill Clark/CQ Roll Call file photo)

Republican Rep. Denver Riggleman says a looming tax increase on small craft distillers will lead to layoffs at the distillery his family operates in Afton, Virginia, where they make a handful of spirits with colorful names like Strange Monkey Gin and Blackback Bourbon.

And Jeff Quint, a Swisher, Iowa, distillery owner who makes bourbon from corn grown on his family farm, says the demise of the small distillers’ break will force him to rethink new hires he’d been planning.

Meanwhile, the biodiesel industry says layoffs have already hit home because of the expiration 23 months ago of a $1 per gallon tax credit. According to Energy Department data, the industry’s output was down 10 percent over the summer, and an industry group says 10 biodiesel plants have cut production, laid off workers or actually shut down so far.

Those are a smattering of the consequences various stakeholders are peppering lawmakers with as the end of the year approaches without a deal on tax extenders, a collection of breaks including dozens that expired as far back as Jan. 1, 2018, like the biodiesel credit.

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With time running short on the legislative calendar, the best bet at this point for getting tax legislation to President Donald Trump’s desk appears to be fiscal 2020 appropriations legislation that’s still in the works. The current deadline to get the spending bills done is Dec. 20, when stopgap funding runs out.

Other provisions expiring at the end of the current calendar year, in addition to the distillers’ break, include a $3.5 billion allocation for new markets tax credits, which developers use to attract investment in low-income communities. 

[Denver Riggleman keeps taking flak from other Republicans]

Then there are fixes to the 2017 tax overhaul important to both parties, like the so-called retail glitch that prevents retailers and restaurants from depreciating their building improvements on a faster schedule. Pennsylvania GOP Sen. Patrick J. Toomey and California Democractic Rep. Jimmy Panetta are pushing to add a retail glitch fix to any year-end deal.

A drafting error is blamed for the mistake, which would cost nothing to repair since the Joint Committee on Taxation also missed the oversight, said Kyle Pomerleau, an economist and resident fellow at the conservative American Enterprise Institute. While there hasn’t been an estimate of how much investment the retail glitch fix would spur, it could likely have the biggest economic impact of all the tax provisions in play, Pomerleau said.

Cadillac dreams

Repealing the dreaded “Cadillac tax” on high-cost health care plans, a levy opposed by businesses and unions alike, is also part of the discussions although it doesn’t kick in until 2022.

Senate Finance Chairman Charles E. Grassley of Iowa has been connecting the Cadillac tax repeal to a broader tax extenders deal since the measure flew through the House on a 419-6 vote in July despite the lack of an offset for the $193 billion in projected lost revenue over a decade. House Democrats have insisted on applying their “pay as you go” rule to a tax extenders package, and Grassley points to the Cadillac tax repeal as being a large and obvious exception to that rule.

“It’s going to come up with all these negotiations that are going on on extenders,” he said. Senate Democratic negotiators put Cadillac tax repeal on the table during weekend talks on a year-end package, according to an aide familiar with the negotiations. 

Hearing that his home-state senator was driving a hard bargain on tax extenders cheered Quint, founder of Cedar Ridge Distillery. Quint said his company will have to pay another $350,000 in excise taxes next year unless the 2017 provision that cut excise taxes from $13.50 to $2.70 a proof gallon is extended past its Dec. 31 expiration.

“It’ll throw us into the red unless we make some major changes,” Quint said, adding that canceling plans to hire an additional two employees next year is the obvious “tweak” to his business plan.

“It’s disastrous,” added Riggleman, predicting his wife Christine’s Silverback Distillery would have to pay an added $10,000 or more a month if the excise tax returns to $13.50 a gallon. “We’ve got to let people go,” he said.

Temporary at best?

Ohio Republican Rep. Brad Wenstrup, a backer of legislation to make the distillers’ tax cuts permanent, and Alabama Democratic Rep. Terri A. Sewell, author of the bill to make new markets tax credits permanent, both say they are likely to only win a one-year extension for now.

But there’s a sense of urgency to pass a tax bill despite other breaks being renewed retroactively in past years. Advocates say that’s not so easy to do with programs like new markets tax credits, for instance.

There is an annual competition for the $3.5 billion in allocation authority, for which demand is considerable — there were $14.8 billion worth of applications submitted for the 2019 round, for instance. The tax credit amounts to 39 percent of the cost of the investment and is claimed over a seven-year period.

“There are projects that are going to rot on the vine,” said Bob Rapoza, who heads the New Markets Tax Credit Coalition, which includes banks, investors and community development groups.

In addition to the distillers’ break, one of great interest to Grassley and his constituents is the biodiesel credit, which he helped create. The break is worth about $3 billion a year; members of both parties have agreed to phase it out over several years in a deal with the industry, or at minimum keep it going temporarily but make it retroactive to the start of 2018.

The industry’s biggest producer, Renewable Energy Group of Ames, Iowa, reported last month that if the credit were reinstated for last year and the first three quarters of this year, it would get $450 million.

Failure to pass a tax extenders package could also be expensive to the Treasury, offsetting some of the money it would save if the extenders stay dead. An extenders bill approved by House Ways and Means in June would extend an alternative fuels credit worth 50 cents per gallon, but it would bar claims for the credit based on a butane-gasoline mixture that are currently wending their way through the IRS and the courts.

Without legislation to shut down such claims, taxpayers could be on the hook for an extra $50 billion in alternative fuels credits. Both House Democrats and bipartisan legislation from Grassley and Finance ranking member Ron Wyden of Oregon would fix the issue so that claimants, mostly oil refiners, can’t benefit from butane mixtures, which the IRS has said wasn’t intended by Congress.

Mary Ellen McIntire contributed to this report.

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