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Tax compliance flap shakes up craft beer debate

Posted April 6

— The state Department of Revenue apologized to lawmakers Thursday after a misunderstanding in the House Finance Committee derailed a hearing for a bill requiring more oversight and reporting of tax payments by breweries and distilleries.

The issue is central to efforts being made by alcohol wholesalers and distributors to halt House Bill 500, a proposal to raise the amount of beer breweries can produce before they have to contract with a distributor under North Carolina's three-tiered Alcoholic Beverage Control system. The North Carolina Beer and Wine Wholesalers, the group's lobbying arm, has argued in part that they should remain in control of distribution because they collect and remit state excise taxes.

At the hearing Thursday morning, sponsor Rep. Jamie Boles, R-Moore, introduced House Bill 480 but had to remove it from the agenda after a Revenue liaison gave information that appeared to undermine the need for the bill, contradicting earlier information some members had received from the department.

Most ABC license holders have their tax records, both income and excise, reviewed at the time of their required permit renewal. However, Boles explained, breweries and distilleries hold permits that don't expire, so there's no annual check on their tax reporting.

Under House Bill 480, the ABC Commission would be required to do annual checks on whether breweries and distilleries are in compliance with tax reporting requirements.

The measure would also add new reporting requirements for breweries and distilleries that distribute their own products, requiring annual reporting of quantity and dollar amounts of sales on and off premises and at special events.

If they're found to be out of compliance on business or excise taxes, their permits would be suspended.

"With the number of these breweries," asked Rep. Mitch Setzer, R-Catawba, "is it safe to assume that the state is not collecting the revenue that it is due, and is this problem associated with self-distribution?"

"We’re unaware with any noncompliance due to underreporting at this time," answered Revenue audit director Alan Woodard.

Rep. Julia Howard, R-Davie, said she had been told that there was "a large percentage that was not compliant. Are you indicating to the committee this morning that everyone is in compliance?"

Woodard said compliance, as defined by the department, means checking to see whether a taxpayer has timely filed all required reports and paid all taxes associated with those returns.

"It makes no mention of us auditing the tax return to see if they have underreported," Woodard said.

"Is there a loophole somewhere with Revenue that there are areas where people can be non-compliant and we are losing a large source of revenue?" Howard followed up.

Woodard answered that, if the department believes a taxpayer is underreporting, it initiates an audit.

"Has there been an audit that found that more than 20 percent non-compliant?" Howard asked.

"Not from the Department of Revenue, ma’am," Woodard replied.

Asked why the bill was needed, Boles replied, "I got a report that there was approximately 23 percent that were not in DOR compliance. That’s what led us to where we’re at today."

When he was asked if he could produce the report, Boles responded, "Not at this time," and he pulled the bill off the agenda for the day.

Shortly after the meeting, Boles' office forwarded to all committee members an email chain including a message from Revenue analyst Anthony Edwards to House Speaker Tim Moore's policy director, Nelson Freeman.

In the chain, Freeman had requested a list of breweries that are out of compliance. Edwards replied on Feb. 14 that he couldn't by law give out that information. But he wrote, "We can provide non-taxpayer specific aggregate information which indicates 23 percent of resident breweries are not in total compliance."

By early afternoon, Revenue had sent the House Finance Committee chairs a memo of apology.

"A list of resident breweries (breweries based in North Carolina) was provided to the Department of Revenue by General Assembly staff with the request that we provide a status of tax compliance. The 23% was calculated by a determination that 38 out of the 164 resident breweries provided were not in total compliance. The DOR employee answering questions at today’s meeting was answering under-reporting of taxes under audit and was not aware of the list. The Department regrets the confusion," wrote Revenue legislative liaison Ken Wright.

The measure is likely to resurface in House Finance next week.


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  • D. Aaron Hill Apr 11, 2017
    user avatar

    This 'report' was submitted by Tim Moore's office. Time Moore has received over $98,000 on behalf of the wholesalers.

  • Jim Frei Apr 9, 2017
    user avatar

    If the distributor model works best for a particular brewery, then that brewery will use the distributor. Model might not work for another brewery. No reason to force a business to go thru a middleman - that smacks of communism.

  • Malakai Bluebone Apr 7, 2017
    user avatar

    View quoted thread

    Distributors are like mafia? That is the most ignorant statement I have seen in a while.

    Distributors provide a platform for small breweries to get where they could not by themselves. An already established sales staff and logistics to get them anywhere they want to go. Distributors buy the product from the breweries and then sell it to the retailers with only a minimal markup that is hardly noticed on a retail level. Also pay taxes on both state and federal levels for any brewery they work with.

    Now imagine a brewery decides to distribute their own product, now their overhead includes buying trucks, hiring drivers, fuel, and mechanical upkeep along with the permits and licenses required to sell and deliver alcohol. That would drive their prices up and would be noticed on a retail level and result in less sales.
    Most breweries cannot keep up with demand once they choose to expand and end up closing.

  • Stacie Hagwood Apr 7, 2017
    user avatar

    After reading the article, I am still confused. If no audits have been done, and no audits have been required (since permit doesn't expire) how can they say 23% not in compliance? Distributors are like Mafia....needing to get a cut of the deal....and lawmakers are being "bribed" through campaign contributions. Pure legal graft. Being pro-business, Mr & Mrs. Legislators, means pro-small business as well as mega-business.

  • Larry Matthews Apr 6, 2017
    user avatar

    If I had to guess, the large beer distributors are again throwing around their weight and influence in the General Assembly. There was also push back from the distributors in 2003 when we had Pop the Cap. Just look around North Carolina today. More breweries, more retail bottle shops, more family owned tap rooms and restaurants that feature NC Craft beer. More people employed and more taxes being collected for our state.

    Maybe there is an issue with under reporting or some tax reporting that needs to be filed. But that is an issue in NC regardless of the industry. The way NC has gutted many of our government offices just so that large tax breaks can be given to the wealthy, we all knew this was going to happen.

    Just as our state prospered in 2003 with the rapid expansion of quality craft beer, we will also spur growth in markets with the change of the law to allow more mid-sized breweries that have the resources and the skills to grow their own businesses without the middle man.

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