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Rule changes hike taxes for New York breweries

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SACKETS HARBOR — Customers who frequent the Sackets Harbor Brew Pub to raise a glass may have to pay a little bit more to do so.

Breweries across New York state are subject to higher taxes now that a state court revoked two tax exemptions as a result of a lawsuit waged by an out-of-state beer importer.

That means small craft breweries like Sackets Harbor Brewing Co. will pay 14 cents for every gallon of beer sold. Accordingly, the wholesale cost of a case of beer will rise by 48 cents, and the price of a keg will jump about $3.50. Effective immediately, the regulation is retroactive to March 28.

“This probably isn’t going to cripple us, but it puts us back on par with the rest of the breweries out of state,” said Thomas W. Scozzafava, brewery owner.

The increase was spurred by a lawsuit by Massachusetts importer Shelton Brothers, which challenged the New York Liquor Authority’s right to enforce tax exemptions. The company said that exemptions for breweries in New York gave them an unfair advantage, and that they should pay the same as those from out of state.

Without the 12-year-old tax excise exemption — previously available to all breweries making less than 200,000 gallons a year — 700,000 of the 1.1 million barrels of beer brewed in the state will be taxed for the first time, according to the New York State Brewers Association.

In addition, the authority has reintroduced a $150 label registration fee that used to be waived on all batches of beer smaller than 1,500 barrels.

Mr. Scozzafava said the tax increase will be particularly detrimental for smaller breweries like his, which are fighting to make a profit every year. Last year was the first profitable year for Sackets Harbor Brewing Co. since Mr. Scozzafava acquired the company in 2008.

“The bigger you are, the more advantages you have because you’re able to financially absorb these costs,” he said. “They’re more prepared to deal with this than the smaller startup breweries. New York state has become a haven for craft brewing, but an added cost is going to hurt.”

The tax hike will have implications in two ways for the pub: higher beer prices for the customers who visit, as well as higher prices for the distributors that purchase its beer in bulk quantities. Initially, Mr. Scozzafava won’t be raising prices to compensate for the tax. But if customer demand dwindles, he’ll have no other choice.

If business slows, “we’d probably just have to add on to the tax,” he said. “I don’t think it will be too much of a deterrent for customers, but we’ll probably have to ease up our pricing over time to continue to generate profits.”

The pub distributes its products to Doldo Brothers Inc., Watertown, Eagle Beverage Co., Oswego, and T.J. Sheehan Distributing, Syracuse. These companies then sell the products directly to bars, pubs and restaurants across the state. If consumer spending is significantly curtailed, distributors will buy less product.

“This is a matter of testing the waters to see if customers are negatively impacted,” Mr. Scozzafava said. “Customers don’t have more money to spend, and if they drink less, we’ll be selling less to distributors.”

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