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'Sin' tax plan caps brewery growth

Full Sail Brewing Company could be tapped by a "sin tax" that company officials say would drain its profit margin and dry up its ability for growth.

Irene Firmat, founder and top executive of the Hood River brewery, said Gov. John Kitzhaber's proposal to help cure the state's ailing economy by adding a "nickel-a-drink" excise tax on beer and wine could actually backfire by bringing more job losses.

And she fears it will set a precedent for government officials to cast their eyes on alcohol producers every time they need a quick income fix.

"It really frightens me that the state government is living beyond its means and the cumulative effect that is bringing," said Firmat. "Full Sail was built with `sweat equity' and as hard as we've worked for our money it needs to be respected because we are a very real part of this community."

The possibility of beer and wine taxes being hiked has also worried Jim Parker, executive director of the Oregon Brewers Guild.

"The `nickel-a-drink' proposal is a true lie because it isn't going to be assessed at the point of consumption so it will really mean more like 25-cents-a-drink when the cost is passed up the line," he said.

Parker said the tax on beer and wine shipped within the state actually pencils out as an increase of 53.7 cents a gallon or more than six times the current rate of 8 cents a gallon. He said that hike to 61.7 cents would be more than triple the national average and the second-highest tax rate in the country -- higher than the federal excise tax of 58 cents a gallon.

Firmat said even though Kitzhaber recently amended his tax proposal to exempt breweries that produce less than 200,000 barrels a year, the original plan applied to any company that generated 100,000 barrels or more. She is worried the original plan may resurface since Kitzhaber has vowed to veto the financial package put together by the Legislature during last weekend's special session.

According to Firmat, Full Sail currently brews about 64,000 barrels a year and could not afford to pay the more than $1 million in excise taxes if it reached its anticipated growth capacity of 126,000 barrels.

She said the employee-owned business is already feeling the pinch from enormous utility hikes last year. In fact, Firmat said since a 50 cent per six-pack price increase was levied last October to offset rising energy costs, sales from the $12 million company have been down by eight percent. And Firmat said to offset that loss, any position vacated by the 54-person workforce will not be filled -- at least in the immediate future.

"The consumer has made it known loud and clear this product has a price ceiling -- and we have reached it," wrote Firmat in a letter to Kitzhaber that was sent in late January.

She is joined in her opposition against the proposed excise tax by Hood River state legislators Rep. Patti Smith, R-Corbett, and Sen. Rick Metsger, D-Welches.

"This is not a good time to be raising taxes, particularly when our economy is already on a slippery slope," said Smith. "Hood River has certainly carried its burden of high unemployment and job loss and any hint at tax increases would only exaggerate this problem."

She pointed out that since the Sept. 11 terrorist attacks on the east coast, the Oregon chapter of the National Federation of Independent Businesses has reported a loss of 2,000 charter members. In addition, Smith said the state enjoys the dubious first place ranking in the nation for unemployment.

"I strongly oppose this tax because it is really a production tax and the more they grow the more they are penalized -- and that is just bad economic policy," said Metsger.

Oregon is scrambling to cover a $830 million budget deficit that was created when a decline in revenue made it impossible to cover the 15 percent increase in the state government's 2001-2003 operating costs.

Although Democrats and Republicans have been largely united in their stand against Kitzhaber's beer and wine tax proposal, Firmat fears that may change during political negotiations.

"This is not just a tax on the consumer, it's a tax increase for the company and that makes small businesses very vulnerable during a time of recession," said Firmat.

She said Full Sail, like most of Oregon's small businesses, pays between 35-40 percent of its income in local, state and federal taxes and related fees.

Parker said Oregon currently has 68 craft breweries that employ more than 2,600 Oregonians and play a key role in the health of both the agriculture and tourism industries.

"This is an anti-business tax that would take one industry and literally chop it at the ankles and discourage any growth," said Parker.

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