Wine? Champagne? Beer? Bill would define hard cider and give it a tax cut

My research brief today gives the details on how a change of definition in the law saved hard cider producers from having their federal excise tax rate increase unexpectedly by as much as five to fifteen times greater.

House Bill 995, currently before the General Assembly, would use that same federal definition to bring about a state excise tax cut of about 38 percent.

The backstory to HB 995 offers an example of how hard it is sometimes for government to catch up when markets evolve rapidly.

Hard cider used to be defined in federal law as “still wine derived primarily from apples or apple concentrate and water, containing no other fruit product, and containing at least one-half of 1 percent and less than 7 percent alcohol by volume.”

That 7 percent threshold was hugely important for such an arbitrary cutoff. It was problematic for cideries for two reasons. One, cideries cannot perfectly control carbonation or alcohol content, but it’s normally between 5 and 8.5 percent. Two, producing a run with a little too much carbonation or alcohol content can result in enormous tax increases.

At 7 percent or less, it is taxed at a rate of 22.6 cents per gallon. But if it crosses that 7 percent threshold, it falls under the definition of wine, where it would be taxed at either $1.07 per gallon (nearly five times greater). Or if it contains too much carbonation (i.e., is not “still wine”), it would be considered either a sparkling wine ($3.40 per gallon) or artificially carbonated wine ($3.30 per gallon).

HB 995 would build off that federal definition of hard cider in order to define it for excise tax purposes in North Carolina:

Currently in North Carolina, 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.

Creating an apples-to-apples comparison of the two tax rates would make for a good word problem in an earlier era of math instruction. A gallon is about 3.79 liters, so the current excise tax on hard cider amounts to approximately 99.83 cents per gallon, which is 38.12 cents more per gallon than the tax on beer.

Taxing hard cider, so defined, as beer instead of unfortified wine would, therefore, amount to a 38 percent tax cut.

North Carolina is one of the top apple-producing states in the nation, and Henderson County is one of the top apple-producing county in the nation. North Carolina has the natural resources for a strong craft cider industry. Already there are 28 cideries in the state, mostly in the western part.

Removing unnecessary regulatory restrictions and clunky tax rates would help boost the industry even further.

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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