Picking a side for hard cider to decide an excise tax rate

Here are things I didn’t know till quite recently:

  • North Carolina is seventh in the nation in apple production
  • Henderson County is the seventh-most productive county for apples in the U.S.
  • North Carolina has at least 28 cideries in the state, mostly in Western N.C.

I’ve not even had hard cider. The closest I’ve come is in listening to The Dreadnoughts, a Celtic folk-punk group who write songs about drinking cider.

But I know about how regulations and taxes can slow the growth in an industry. And while cider is making a comeback, recent changes in federal law have greatly reduced expected tax and regulatory costs on hard cider, which have helped.

The short story is, the federal government had to change how hard cider was legally defined in order to address how to regulate and tax it. The change allowed for an alcohol content of up to 8.5 percent (up from 7 percent), allowed for some carbonation (not a “still wine”), and also allowed for hard cider to be made from apples, pears, or concentrates of apples or pears and water (thus including perry).

It was an important change because cideries cannot perfectly control carbonation or alcohol content, but it’s normally between 5 and 8.5 percent. The 7 percent level and carbonation limit meant cideries were always on the verge of a product run falling under regulation as wine or worse, champagne. This would require more expensive labeling and raise their tax rates from 22.6 cents per gallon to either the wine rate of $1.07 per gallon (nearly five times greater) or the sparkling wine rate of $3.40 per gallon (fifteen times greater).

A bill currently before the General Assembly, House Bill 995, would use that federal definition in order to address a similar concern here. After defining in state law what hard cider is, it then would place an excise tax on hard cider like beer.

Currently, hard cider is defined and taxed like unfortified wine. That excise tax rate is 26.34 cents per liter. The tax on beer is 61.71 cents per gallon.

Doing the math, taxing hard cider (so defined) as beer instead of as unfortified wine would therefore amount to a 38 percent tax cut.

Jon Sanders / Director of Regulatory Studies

Jon Sanders studies regulatory policy, a veritable kudzu of invasive government and unintended consequences. As director of regulatory studies at the John Locke Foundation, Jo...

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