Newly Appointed Chair Gets a Taste of What It Takes to Run a Brewery

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Tackey Chan House Chair of Committee on Consumer Protection and Professional Licensure visits Barrel House Z with Massachusetts Brewers Guild members

 Joined by brewers from Moon Hill and Castle Island, Chairman Tackey Chan met with the Massachusetts Brewers Guild at Barrel House Z in Weymouth to discuss the challenges and successes facing the modern-day brewer.

“Craft beer is one of the fastest growing industries in Massachusetts with thirty new breweries slated to open this year alone,” said Katie Stinchon, Executive Director of the Guild. “However, the Commonwealth’s policies are made for a different era. We are grateful for the opportunity to share our story with Rep. Chan as he now takes the lead on craft policies that will directly impact our membership’s ability to thrive in Massachusetts.”

In the efforts of promoting license and franchise law reform, the Guild has elevated their presence by testifying during Massachusetts State Treasurer Debora Goldberg’s Alcohol Task Force meetings. This session, the House Bill 183 and Senate Bill 136 look to promote a level playing field for all craft brewers and empower them with the ability to make strategic business decisions.

Founded in 2007 by a group of committed and passionate brewers, the Massachusetts Brewers Guild, is a nonprofit that exists to protect and promote the interests of craft brewers across the Commonwealth. In 2016, there were 122 active brewers including 91 Farmer Brewers, 7 Manufacturing Breweries and 24 Pub Breweries.

Ryan Daigle, MBG Board members and head brewer at Moon Hill, Adam Romanow, co-founder of Castle Island, Russ Heissner, founder of Barrel House Z and Chair Tackey Chan talk about the booming craft beer industry in Massachusetts. 

Ryan Daigle, MBG Board members and head brewer at Moon Hill, Adam Romanow, co-founder of Castle Island, Russ Heissner, founder of Barrel House Z and Chair Tackey Chan talk about the booming craft beer industry in Massachusetts. 

Sending your craft beer abroad? Here is a tax benefit Uncle Sam wants you to use

By: Robert Babine
Edelstein CPAs

Thinking of selling your brew abroad? Did you know there are some tax benefits available for exporters?

Uncle Sam wants you to send your delicious American craft beer across the sea, so he made available to you a tax exempt entity known as the IC-DISC, which is relatively inexpensive to setup and maintain.

Intro to the IC-DISC

Its long name is the Interest Charge Domestic International Sales Corporation (IC-DISC). There are two types of IC-DISC entities: a commission agent and a buy/sell DISC. This article will focus on the commission only DISC as it is the simplest and often most cost effective. The commission only DISC acts as a commission agent on behalf of your business. It runs in parallel to your existing operating business and comes into play when your beer is exported. Even if you indirectly export your brew by utilizing a distributor, as long as you know your beer is going abroad, you may qualify for this tax saving opportunity.

What is the incentive and benefit?

By acting as an export agent on your behalf, the IC-DISC entity is entitled to a commission, which is a deduction to your main operating business at ordinary income tax rates. The commission received by the IC-DISC, which is tax exempt, is then paid out as a dividend to its shareholders. Therefore, the IC-DISC is converting a portion of your export net income subject to ordinary income tax rates to qualified dividend rates on the dividends being paid to its shareholders.

How do you determine the commission and dividend? There are two primary methods. The first method is 4 percent of the qualified export receipts and the second method, 50 percent of export net income. The first method is simple, a straight 4 percent on foreign sales. However, while the second method requires some more work, it often results in a higher commission paid to the IC-DISC and therefore more export income converted into dividends.

Illustration of the benefits

Pat is the owner of a brewery who wants to grow his brand abroad. At the advice of his accountant, he created a commission only IC-DISC entity. Pat’s current brewery is as an S-Corp. The beer Pat plans to ship abroad will be his flagship brew that is currently priced to yield a 60 percent gross profit margin. At the end of the year, Pat’s business had international revenue of $300,000.

First, we need to determine the commission to be paid to the IC-DISC. You can see from the table below that using the 50 percent method results in a commission amount of $90,000 which provides a much greater benefit versus the 4 percent method as illustrated below:

Second, because Pat’s brewery is an S-Corporation, the business income flows through to Pat. By utilization of the IC-DISC entity, you can see how a portion of his reported business income is converted into qualified dividends, however total taxable income remains the same.

You will notice that in total, taxable income is the same. But, business net income is subject to higher tax rates than qualified dividends received. Now, assuming Pat is in the highest tax bracket of 39.6 percent with a qualified dividend rate of 23.8 percent, his savings at the end of the day is:

Is it worth it?

At the end of the day, Pat saved $14,220, and this is assuming he is in the highest tax bracket! For most, if not all brewers, $14,220 is a lot of cash that can be put to good use. Also, remember this is a fairly cheap way to save cash with very little paperwork or effort.

There are other benefits as well. These include giving key employees or sales team members an ownership interest in the IC-DISC entity, motivating them to sell more abroad and grow those untapped markets. Or, you don’t want to take the dividend and rather keep the cash in your business. Not a problem: The IC-DISC entity can loan the proceeds back to the operating entity, effectively deferring tax. However, the IRS requires that you pay interest, but not to worry — the rates are low because they are tied to U.S. Treasury bills.

Bottom Line

If you are sending your beer or equipment manufactured here in the states to another country, it is worth looking into setting up an IC-DISC entity to reduce your tax burden. There are also more complex IC-DISC planning methodologies that may offer greater savings in cases where the benefits outweigh the additional costs as well. It is important to note that these vehicles cannot be used retroactively and need to be established as soon as possible to start utilizing and taking advantage of the savings offered.

This article was as originally published on Craftbrewingbusiness.com.


Robert Babine, CPA, a principal in the Boston accounting firm Edelstein & Company LLP, advises craft beer industry leaders, as well technology, retail, professional services, manufacturing and other privately held entities with complex accounting and operations issues.

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Punishing Innovation, the Entrepreneurial Spirit and the Consumer

By: Drew Brosseau
Owner of Mayflower Brewing Co.

Massachusetts residents have already shown their sentiments about increasing taxes on alcohol.

In the 2010 state election, the effort to repeal the state’s newly-imposed 6.25 percent sales tax on alcohol was the only ballot measure to prevail, and it was overwhelmingly backed by Massachusetts communities bordering New Hampshire.

As a brewery owner, I pay federal and state tax on the craft beer we produce. Increasing taxes at the state level would cause brewers to raise prices on the consumer, which would ultimately mean less beer bought by patrons, and a resulting loss of business for all those involved in the industry - craft brewers, barley farmers, hop growers, equipment and supply manufacturers, distributors, truck drivers, retailers, restaurants, and pubs. 

A higher tax burden would also stifle innovation by brewers and result in fewer products in the marketplace. Today, there are 122 breweries across the Commonwealth that employ nearly 3,000 locals and contribute to travel and tourism to our state. In 2014, according to the Brewers Association, Massachusetts craft beer had a $1.4 billion economic impact with brewers producing about 611,341 barrels. An additional 30 breweries are slated to open later this year, and the Massachusetts Brewers Guild reports that it is constantly fielding calls from towns and cities looking for entrepreneurs and brewers to bring a brewery or brewpub to their neighborhoods. 

The craft beer industry is helping to revitalize downtown communities and bring back manufacturing jobs. My company, Mayflower Brewing alone employs more than 25 locals at our brewery in Plymouth.

A higher taxed product will only send craft beer lovers across the borders to neighboring states. The consequence will be more businesses closed, more jobs lost, and less revenue collected in the form of income, sales, use and alcohol excise taxes. It is not effective way to encourage responsible consumption or to support a growing industry in Massachusetts.

Overconsumption of alcohol is a societal problem that has always existed.  But tax policy is not the appropriate way to change behavior.  Raising taxes will not prevent bad actors from consuming too much.  It will only punish responsible drinkers with higher prices.

Drew Brosseau is the owner of Mayflower Brewing Co. in Plymouth, MA and a board member of the Massachusetts Brewers Guild. The Massachusetts Brewers Guild is a nonprofit organization that works to protect and promote the interests of craft brewers across the Commonwealth. For more information, visit MassBrewersGuild.org.

 

Mass Brewers Guild Hosts First New Brewery Bootcamp

60 attendees sell out Conference to Learn from Experts 

Yesterday, at the Springdale Barrel Room in Framingham, MA, a crowd of 60 new breweries and breweries in-planning gathered at the "New Brewery Bootcamp," a full day seminar offered through the Mass Brewers Guild. 

The afternoon covered topics such as employee law, insurance risks, taxes, distribution, real estate leases, waste water management and more. Experts from Bowditch and Dewey Attorneys, Bernstein Shur Law Firm, Edelstein & Company CPAs, GHM Insurance, and Weston & Sampson shared their best practices and advice for navigating the industry. 

Co-founder of Jack's Abby Craft Lagers and Mass Brewers Guild treasurer, Sam Hendler, presented on the challenges of getting beer to market, and president of the Mass Brewers Guild and co-founder of Night Shift Brewing, Rob Burns, spoke candidly about his growing pains as an experienced brewer and entrepreneur. 

"This conference was born out of popular demand and a need in the Massachusetts craft beer industry," says Rob Burns, co-founder of Night Shift Brewing and president of the Mass Brewers Guild. "There are 30 breweries in-planning slated to open this year and we want to provide these budding entrepreneurs with the resources they need to remain successful, independent businesses. Opening a brewery is about more than brewing great beer." 

The sold out, ticketed event helped to raise $1,000 for the Mass Brewers Guild, a nonprofit organization that works to protect and promote the interests of craft brewers across the Commonwealth. Due to its success organizers say it will become a yearly program. 

To date, more than 122 breweries exist across the state and employ more than 3,000 locals. MA craft breweries drive traffic and tourism to the Commonwealth and pour world-class craft beer to thirsty locals and travelers. Massachusetts’ breweries are ranked among the best in the world, country and region, with accolades and awards being announced weekly.

For more information about the Mass Brewers Guild, or its upcoming events, visit MassBrewersGuild.org. 

 

Tips on Tap for Breweries on the Journey from Passion to Profit

Verrill Dana’s Breweries, Distilleries & Wineries Group Presents Tap Tips Podcast Mini-series

As the number of craft breweries across the country continues to grow, Verrill Dana’s Breweries, Distilleries & Wineries Group presents Tap Tips Podcast Miniseries to help brewers on the journey from passion to profit.

The Tap Tips Podcast Miniseries contains eight episodes to assist up-and-coming brewmasters and brewery owners to think critically about the issues affecting their business. These podcasts provide information and practical tips for navigating the various complex issues that may arise at any stage, from business formation to licensing to risk management.

This mini-series is part of Verrill Dana’s “Verrill Voices” podcast series, the next evolution of the firm’s longstanding efforts to keep business leaders up-to-date, which already include in-person seminars, webinars, email alerts, and blogs.

Episodes of the Tap Tips Podcast Mini-series can be found at www.verrilldana.com/taptipspodcast, in addition to on iTunes and SoundCloud

About Verrill DanaVerrill Dana, LLP is a full-service law firm conducting a nationwide practice from offices in Boston, Mass.; Portland and Augusta, Maine; Providence, R.I.; Westport, Conn.; and Washington, D.C. To learn more, visit www.verrilldana.com.

 

Mass Fermentational Tickets Now On Sale!

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“Mass Fermentational” Set to Take Over Worcester Common

Fresh off the heels of its successful Power Beer Fest, the Massachusetts Brewers Guild announces its second beer festival and fundraiser of the year, the Mass Fermentational.

Breaking tradition from its typical location, The World Trade Center in Boston, the fall festival is changing venues to the Worcester Common and expects to draw 2,500 patrons to the green on Saturday, Sept. 16 from 1 to 5 p.m. located at 455 Main St. Worcester, MA.

“We are excited to shift locations and offer a festival outside of Boston this year,” says Rob Burns, co-founder of Night Shift and president of the Massachusetts Brewers Guild. “There are craft beer fans in every corner of the state, it only makes sense to diversify and bring a great beer show closer to their doorstep. We are grateful to the City of Worcester for welcoming us and ready for another successful beer festival.” Discover Central Massachusetts and Provider Insurance are the events leading sponsors.

The Massachusetts Brewers Guild is a nonprofit organization that exists to protect and promote the interests of craft breweries across the Commonwealth. More than fifty breweries are expected to pour at the Mass Fermentational, which will raise funds to create educational and marketing programs for local breweries and support the organization’s government affairs work.

Participating Breweries Include: 3 Beards Beer Co., 3cross Brewing Co, Aeronaut Brewing Company, Amherst Brewing, Bad Martha, Barrel House Z, Battle Road Brewing Company, Bent Water Brewing, Big Alice Brewing, Big Elm, Bone Up Brewing Company, Boston Beer Works, Cape Ann Brewing Co, Castle Island Brewing Co., Clown Shoes Beer, Cold Harbor Brewing Company, CraftRoots Brewing, Down The Road Beer Co., Element Brewing & Distilling, Exhibit 'A' Brewing Company, Flying Dreams Brewing Co., Harpoon Brewery, Honest Weight Artisan Beer, Jacks's Abby Craft Lagers, John Harvard's Brewery & Alehouse, Lookout Farm Brewing & Hard Cider Co. Lord Hobo Brewing Co., Mast Landing Brewing, Medusa Brewing Company, Moon Hill Brewing Co., Night Shift Brewing, Riverwalk Brewing Co., Start Line Brewing, Tree House Brewing Co., Wachusett Brewing Company and Wormtown Brewery. (Brewery list is being updated regularly.)

Tickets are $45 for general admission and includes unlimited two-ounce beer samples from participating breweries. Non-drinkers who wish to enjoy the atmosphere and an afternoon with friends -- but are not sampling -- can purchase a Designated Driver Ticket for $10. Once inside the festival, patrons can purchase gourmet eats served up by several food trucks onsite; Big T's BBQ, Press’n It, Sabor Latino, Teddy's Lunch Box, Travelin' Bones BBQ and Trolley Dogs.

Massachusetts Brewers Guild events are organized by craft brewers for craft brewers. To date, more than 122 breweries exist across the state. Breweries employ locals, drive traffic and tourism to the Commonwealth and pour world-class craft beer to thirsty locals and travelers. Massachusetts’ breweries are ranked among the best in the world, country and region, with accolades and awards being announced weekly.

The Mass Fermentational is a 21+ event, no exceptions. Identification required at the door. No dogs allowed with the exception of certified service animals. To purchase tickets, visit MassFermentational.EventBrite.com.

Three Keys to Crafting a Better Business Protection Plan

By: Matt Montesano
A craft brewery insurance consultant at Cavallo & Signoriello 

It’s a warm, sunny day in Massachusetts. The Red Sox are up by five runs. The food truck is serving your favorite grilled cheese (the one with the fontina and the perfectly caramelized onions...). Clusters of friends are gathered outside on the patio, sipping your summer special—a smooth brew of honey and citrus.

Leave it to an insurance agent to spoil this idyllic scene, but hey, risk management is our job. And at the end of the day, most craft brewers thank us for pointing out the gaps they hadn’t seen before. Are any of the following exposures lurking around your craft brewery? If so, these three tips will help you take action.

1.     Understand Your Risk Profile

Craft breweries and brew pubs are unique businesses in every sense, but especially in terms of their insurance requirements. Sure, you need general liability, workers’ comp, and property insurance—just like any commercial outfit. But beyond these basics, coverage types get pretty specific. (Or at least they should.) Don’t settle for an insurance package that’s designed for a neighborhood bar or a manufacturing plant. Neither one is synonymous with your risk profile.

Instead, ask your agent about niche coverages that might need to be bundled into your program. Commonly overlooked coverages include tank collapse, tank leakage, boiler and machinery breakdown, water processing disruption, product contamination or recall, and key employee coverage for your head brewer or brew master. (Yep, that’s right. There’s an endorsement available to help you recoup the costs of recruiting and hiring a new point person if necessary.)

Business interruption insurance is another biggie. A lot of breweries have it, although not often for the right amount. With dozens of breweries entering the market each week, the wait time associated with new tanks and equipment orders has skyrocketed. Following a fire, major storm, or other door-closing event, your policy needs to account for this prolonged lag.

2.     Partner with the Right Team

Okay, so now you’re aware that craft brewery insurance is a super-nuanced product, much like the flavor profiles you create. It stands to reason that not every insurance agency is up to the task of quoting your business, nor every commercial insurance carrier. (You don’t want your business to be the guinea pig for someone’s foray into brewery insurance.)

Before choosing an insurance partner, find out if the different candidates are fully invested in your industry. For starters, do they spend any personal time at local breweries? Do they know the difference between Golding and Chinook hops? Do they even enjoy beer? Admittedly, these aren’t essential criteria, but it’s always easier to work with someone who recognizes and appreciates the value of what you do every day. More important qualifiers include number of years in business, customer references, value-added service offerings, industry association membership (e.g. the MBG), network and carrier relationships.

Why do networks matter? Because your insurance agent should be helping you more than once a year. As your business evolves, your footprint and risk profile can change, too. Maybe you’ll want to add a roof deck, start leasing kegs, bring in live entertainment, build an in-house kitchen, take your business on the road… In cases like these (and so many others!), a legal and/or financial expert should be guiding your path; brewery insurance professionals already have relationships with the folks you should consult. Meanwhile, they know how all of the above changes will affect your coverage needs.

3.     Prevent Loss Events before They Happen

Remember the Chris Rock bit that defines insurance as, “in case sh*t happens”? Good insurance partners don’t approach business protection this way, and neither should you. Ongoing, proactive risk management should be a built-in component of your business plan. If you don’t have the time or resources to get it done independently, don’t be shy about calling on your agent.

Some preventable loss events are obvious: liquor liability claims, for example. You staff should receive regular training on how to avoid over pouring, over-serving, or allowing intoxicated patrons to drive. But you can also take steps to prevent employee injuries and costly business disruptions. Hosting onsite trainings to teach proper lifting techniques, believe it or not, can save you a lot vis-à-vis workers’ compensation claims.

Here are some other pieces that belong in a thorough craft brewery safety program: employee handbooks, first aid and CPR training, defensive driver training for fleet drivers (if applicable), hazard analyses and written procedures in accordance with OSHA guidelines. Your brewery insurance partner should be available to help with all of it.

Because ultimately, creating the good stuff—the atmosphere, the flavors, the throngs of loyal fans—is your job.  Protecting your ability to thrive and grow: that’s the real definition of insurance. And when you leverage it correctly, it’s every bit as idyllic as a summer day on the patio.

Matt Montesano is a craft brewery insurance consultant with more than five years of experience in customer service and sales. He holds a degree in finance from Providence College, where he was a member of the Friars’ Division I hockey team. Outside the C&S Insurance office, Matt enjoys discovering new restaurants and breweries in and around Boston. He can also be found at the park or the beach with his 10-month-old English shepherd, Gordie. Follow Matt’s tweets @MattMontesano26.

Matt Montesano is a craft brewery insurance consultant with more than five years of experience in customer service and sales. He holds a degree in finance from Providence College, where he was a member of the Friars’ Division I hockey team. Outside the C&S Insurance office, Matt enjoys discovering new restaurants and breweries in and around Boston. He can also be found at the park or the beach with his 10-month-old English shepherd, Gordie. Follow Matt’s tweets @MattMontesano26.

Craft breweries and brew pubs have an extremely unique risk profile. Not every insurance provider is up to speed on the industry’s exposures and available products. At C&S, we work with leading carriers—several of whom offer brewery-specific insurance packages, designed to bundle the appropriate coverage into one, hassle-free insurance program. Ask our experts how your brew pub or craft brewery insurance should be structured, based on your individual operation.

Craft breweries and brew pubs have an extremely unique risk profile. Not every insurance provider is up to speed on the industry’s exposures and available products. At C&S, we work with leading carriers—several of whom offer brewery-specific insurance packages, designed to bundle the appropriate coverage into one, hassle-free insurance program. Ask our experts how your brew pub or craft brewery insurance should be structured, based on your individual operation.

Independence Matters

Brewers Association Launches New Seal to Designate Independent Beers   

Boulder, CO • June 27, 2017—In an effort to educate beer lovers about which beers are independently produced, the Brewers Association—the not-for-profit trade group dedicated to promoting and protecting America’s small and independent craft brewers—launched a new seal touting independent craft brewers.  

Featuring an iconic beer bottle shape flipped upside down, the seal captures the spirit with which craft brewers have upended beer, while informing beer lovers they are choosing a beer from a brewery that is independently owned. These breweries run their businesses free of influence from other alcohol beverage companies which are not themselves craft brewers.  

Independence is a hallmark of the craft brewing industry, and it matters to the brewers who make the beer and the beer lovers who drink it. A recent study commissioned by Brewbound and conducted Nielsen found that “independent” and “independently owned” strongly resonated with the majority (81 percent) of craft beer drinkers. Increasingly, they are looking for differentiation between what’s being produced by small and independent craft brewers versus Big Beer and acquired brands. Beer drinkers, especially Millennials, expect transparency when it comes to their food and beverages. That transparency and underlying ownership can drive their purchase intent.  

“Independent craft brewers continue to turn the beer industry on its head by putting community over corporation and beer before the bottom line. They continue to better beer and our country by going beyond just making the beverage. These small businesses give back to their backyard communities and support thousands of cities and towns across the U.S.,” said Bob Pease, president & CEO, Brewers Association. “As Big Beer acquires former craft brands, beer drinkers have become increasingly confused about which brewers remain independent. Beer lovers are interested in transparency when it comes to brewery ownership. This seal is a simple way to provide that clarity—now they can know what’s been brewed small and certified independent.”  

The seal is available for use free of charge by any of the more than 5,300 small and independent American craft brewers that have a valid TTB Brewer’s Notice, meet the BA’s craft brewer definition, and sign a license agreement. It is available to both member and non-member breweries of the BA. In the coming weeks, months and years, beer lovers will see it on beer packaging, at retailers and in brewery communications and marketing materials.  

“Craft brewers build communities and the spirit of independent ownership matters” said Rob Tod, chair, Brewers Association Board of Directors and founder, Allagash Brewing Company in Portland, Maine. “When beer lovers buy independent craft beer, they are supporting American entrepreneurs and the risk takers who have long strived not just to be innovative and make truly great beer, but to also build culture and community in the process.”  

While small and independent craft brewers represent 99 percent of the 5,300+ breweries in the U.S., they make just 12 percent of the beer sold in the country. The rest of U.S. beer sales comes from Big Beer along with imported brands. As large brewers continue to have unprecedented influence and acquire millions of barrels of formerly independently brewed beer, the seal differentiates in a crowded and increasingly competitive marketplace.  

"On behalf of the MA Brewers Guild, we fully support the Brewers Association in this initiative, and we’re in the process of getting the information out to our independent craft brewery members across the Commonwealth," says Rob Burns, President of the Mass Brewers Guild. "We are raising our pints to the Brewers Association for taking this stance and will do what we can to make sure our members join the effort."

Breweries can find more information about the independent craft brewer seal at BrewersAssociation.org/seal and beer lovers can learn more at CraftBeer.com/seal. Follow the discussion at #IndependentBeer.  

About the Brewers Association:
The Brewers Association is the not-for-profit trade association dedicated to small and independent American brewers, their beers and the community of brewing enthusiasts. The Brewers Association (BA) represents more than 70 percent of the brewing industry, and its members make more than 99 percent of the beer brewed in the U.S. The BA organizes events including the World Beer CupSM, Great American Beer Festival®, Craft Brewers Conference & BrewExpo America®, SAVOR℠: An American Craft Beer & Food Experience, Homebrew Con, National Homebrew Competition and American Craft Beer Week®. The BA publishes The New Brewer® magazine and its Brewers Publications™ division is the largest publisher of contemporary and relevant brewing literature for today’s craft brewers and homebrewers.   Beer lovers are invited to learn more about the dynamic world of craft beer at CraftBeer.com and about homebrewing via the BA’s American Homebrewers Association and the free Brew Guru™ mobile app. Follow us on Facebook and Twitter.  

The Brewers Association is an equal opportunity employer and does not discriminate on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, or marital/familial status. The BA complies with provisions of Executive Order 11246 and the rules, regulations, and relevant orders of the Secretary of Labor.