Pennsylvania 2016-2017 Budget Revives Brewers’ Tax Credit – With A Catch
July 21, 2016
Pennsylvania Governor Tom Wolf recently signed into law the last piece of the 2016-2017 budget picture: House Bill 1198, the revenue package to pay for the spending previously approved by the House and Senate and which became law absent the Governor’s signature earlier in July. While much of the early discussion of the revenue package focused on its dollar-per-pack increase in the state’s cigarette tax and new taxes on e-cigarette, smokeless and roll-your-own tobacco products, the legislature quietly folded into the bill a provision that the state’s craft brewing industry has long sought: the revival of the malt beverage tax credit.
The malt beverage tax credit was available to manufacturers of malt and brewed beverages that made “qualifying capital expenditures,” which was defined to mean any amounts paid by the manufacturer for the purchase of items of plant, machinery or equipment for use within Pennsylvania in the manufacture or sale of malt or brewed beverages. A total credit of up to $200,000 was available in any calendar year. Unfortunately, the credit had expired on January 1, 2009 – leaving many new brewers that recently entered the industry at a competitive disadvantage to those that came before them.
With the passage of this year’s budget, the state’s brewers once again have access to the tax credit. Significantly, the newly reauthorized tax credit applies to any brewer in the state – not just small brewers as was previously the case. Under prior law an applicant could produce no more than 1,500,000 barrels in a year if it wished to be eligible for a tax credit. Under the new law, any brewer can apply for credits, regardless of its production quantity.
While the revival of this tax credit is a win for the craft brewing industry, it must be noted that the credits will not start flowing again until July 1, 2017. Therefore, brewers that made qualifying capital expenditures after January 1, 2009 and before July 1, 2017 will not be eligible for the tax credit.
The total amount of tax credits available in any calendar year is capped at $5,000,000, which works out to 25 companies if each submitted a request for the maximum allowable tax credit of $200,000. In the event the total number of credits requested in a calendar year exceeds the cap, each applicant will receive a partial credit. In light of the removal of the 1,500,000 barrels-produced cap and the growth of the state’s brewing industry, the possibility that the $5,000,000 limit will be exceeded in any given year will increase.
The availability of an up to $200,000 tax credit is a strong incentive for established brewers to consider delaying expansion or upgrade plans, if feasible. Similarly, individuals looking to enter the market in the near-term should revisit their business plans to take into account the availability of the tax credit.
Tim Horstmann is a finance and tax attorney with the law firm of McNees Wallace & Nurick LLC and a member of the firm’s Food and Beverage Group. His practice includes the representation of many Pennsylvania breweries. He can be reached at email@example.com.
© 2016 McNees Wallace & Nurick LLC
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