Lower taxes could give craft liquor distilleries a boost

EVERETT — The architect designed the cavernous space to work with boats.

But that business never materialized at the Port of Everett’s Waterfront Center’s Suite 116 after it opened four years ago.

Instead, the suite is where John Lundin makes booze, specifically vodka and gin. And even more specifically, small-batch, hand-distilled federally certified organic vodka and gin.

His company, Bluewater Organic Distilling, is one of a few hundred small distilleries in the U.S. that are creating a craft liquor industry. Their proliferation in recent years echoes similar evolutions in recent decades in the beer and wine industries.

Small distillers are fighting for space on shelves and menus against industry giants such as Jack Daniels and Absolut.

Supporters in Congress, including Rep. Rick Larsen, D-Wash., have reintroduced a bill to cut small distillers’ federal tax bills.

The proposed Small Distilleries Fairness Act, which is sponsored by Larsen and Ohio Republican Rep. Steve Stivers, would cut by 80 percent the amount of federal excise tax paid by small distilleries.

The tax is based on the physical volume of pure alcohol in a distilled spirit. So, the tax is greater on a fifth of 90 proof vodka than on a fifth that is only 80 proof. The excise on Bluewater’s 90 proof vodka is $2.68 for a 750 milliliter bottle — which is size of most wine bottles — and $2.14 on its 80 proof product.

For the 80 proof, that adds up to $1,438 in excise tax on a pallet of 56 cases with 12 bottles each.

Under the Larsen and Stivers bill, he’d pay $287.

“That’s basically $1,150 to reinvest in the business,” Lundin said.

Larsen sponsored a similar bill in 2013, but it died without getting a vote.

The current bill’s best odds are if it is folded into larger tax legislation, he said.

“We’re trying to level the playing field among small brewers, wineries and distilleries,” he said.

Congress has already stepped in to help small breweries and wineries. Craft beermakers pay about 39 percent of the excise tax that large breweries do. Small wineries only pay 18 percent, compared to big-name competitors such as Robert Mondavi Winery.

Distillers from Bluewater to Jim Beam pay the same amount, said Jason Parker, head of the Washington Distillers Guild. There are 113 small distilleries in the state.

“We just want parity” with other small-scale producers of alcoholic drinks, he said.

Parker is co-owner of Copperworks Distilling Co. in Seattle, which sells vodka and gin. It has been aging whiskey since 2013, which should be ready for sale next year, he said. “The whiskey will tell us when its ready.”

He expects to sell 3,000 cases of vodka and gin this year. Under Larsen’s bill, the distillery would save nearly $90,000.

“With that amount of money, I would be able to hire two people to help with sales and another for production,” he said.

Lowering distilleries’ federal tax bill will also reduce the amount of state taxes they pay here. Washington taxes distilleries on the price of the bottle, including the excise tax.

“It’s a really sick way of doing business,” Lundin said.

The savings would help him to further expand Bluewater. Later this spring, the distillery is moving into a larger space at Waterfront Place and adding 10 to 12 employees, including up to eight full-time positions, he said.

The new 4,800-square-foot space is much more retail-friendly. It faces the water and has a sidewalk, something missing from Bluewater’s current location.

The space is only bare bones now. Exposed girders and columns trace where walls will go.

“This area will open for outdoor seating when the weather’s nice,” Lundin said, sweeping a hand across the window-lined storefront. “And there will be a full bar here.”

The distillery will have a full kitchen with a small-plates menu highlighting local foods, especially seafood, he said. The location will also offer tastings and retail sales, and it will be able to host events.

“Just because you put a beautiful bottle on a liquor store shelf doesn’t mean anyone is going to pick it up,” Lundin said. “You have to build relationships — with bartenders, distributors, restaurants and customers.”

Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com; Twitter: @dcatchpole.