In Texas Senate, craft brewers fight for off-premise sales, try to ward off taproom tax

Kyser Lough for American-Statesman. Texas breweries with financial backing from other larger breweries, like Independence Brewing, pictured here, might have to pay distributors for every beer they sell in their taprooms under a proposed law making its way through the Senate.

Texas is the only state in the U.S. that doesn’t allow its breweries to sell beer directly to consumers for their enjoyment off-site. Texas also ranks 46th in breweries per capita.

Those two facts were repeated often during a morning Senate committee hearing in which a number of people involved in the brewing industry — brewers and distributors alike — voiced their thoughts on Senate Bill 1217 and Senate Bill 2083, two craft beer-focused bills with very different aims.

SB 1217 would allow breweries to join Texas wineries, distilleries and brewpubs in selling their products for off-premise consumption, while SB 2083, the companion bill to House Bill 3287, would seek to limit breweries that grow beyond a certain size or become owned by a larger beer company. To sell beer in their taprooms, these breweries (which include Austin’s Oskar Blues and Independence Brewing) might have to first sell the beer to their distributor and buy it back.

The Texas House of Representatives voted overwhelmingly this weekend not to legalize taproom beer purchases for off-site consumption and also voted in favor of the limitations on larger breweries, those making 225,000 barrels or more of beer per year.

Proponents of the latter bill, namely distributors through the trade groups Beer Alliance of Texas and Wholesale Beer Distributors of Texas, argue that it prevents large multinational breweries from “gobbling up” Texas’ small craft breweries and having “access to multiple taprooms across the state,” Rick Donley, representing the Beer Alliance, said during the committee hearing this morning.

That would be in violation of the three-tier system, Keith Strama, counsel for the Wholesale Beer Distributors of Texas, added in later testimony, a system that “has allowed for an incredibly competitive marketplace and allows smalls breweries to thrive in a way that other commodities can’t do because of the inability to get to market without a distribution tier.”

In that way, SB 2083 protects small craft breweries in the state, according to the bill’s author, State Sen. Kel Seliger, R-Amarillo.

But that’s not how the Texas Craft Brewers Guild, the organization representing these brewers, or the Texas Association of Manufacturers, the organization representing the state’s small businesses, see it. Both came out against SB 2083 at the hearing, along with numerous brewers, including Chip McElroy of Live Oak Brewing and Amy Cartwright of Independence Brewing, one of the directly affected breweries.

They argue that SB 2083 and the already-passed HB 3287 — which at the moment directly affect only a small number of brewers, mainly those owned by larger breweries like Anheuser-Busch and MillerCoors — would discourage investors and limit their businesses’ growth.

Josh Hare, owner of Hops & Grain Brewing and board chairman of the guild, spoke out against the proposed payment larger breweries would have to make to distributors for their taproom beers, calling it a tax. His brewery is in the process of opening a new location in San Marcos.

“If we exceed the collective 225,000 barrel limit, we would be forced then to sell our beer to a wholesaler, buy it back to sell in our tasting room, and it would dramatically cut into our margins and ultimate profitability. I would also like to emphasize here that the beer would never leave our brewery. It would just be paper moving around,” he said. “The wholesaler would place a dock bump tax on that transaction, receiving payment for no added value to what we’re doing on-site.”

Sweeping 2013 legislation allowed, among other things, for production breweries to sell up to 5,000 barrels of beer to consumers for on-site consumption. Breweries aren’t asking for that number to increase but do want to be able to also sell a six-pack to a customer to take home. That’s where SB 1217, from State Sen. Dawn Buckingham, R-Lakeway, comes in.

The bill restricts monthly purchases to 576 fl. oz. per consumer, the equivalent of two cases of beer. Brewers are in support of it; distributors are not.

“Data from other states shows that off-premise sales leads to more brewery openings, more beer tourism and more retail sales across every tier,” Michael Graham, co-founder of Austin Beerworks, said.

Donley, representing a wholesalers’ group, did not outright discuss why the group is against the bill but pointed out the issue of off-premise sales will be resolved in court because of an ongoing suit Deep Ellum Brewing, in the Dallas-Fort Worth area, has raised against the Texas Alcoholic Beverage Commission.

The question of taprooms selling beer to-go “involves some intricate points of federal law, including commerce clause issues, equal protection clause issues, but it also strikes at the very core of the 21st Amendment of the United States Constitution,” Donnelly said, referencing the amendment that repealed Prohibition and gave the states total control over alcoholic beverages.

State Sen. Craig Estes, R-Wichita Falls, asked for clarification about the amendment — how allowing Texas breweries to sell beer to-go, something 49 other states do in some capacity, would “strike at the core” of the U.S. Constitution.

“We repealed Prohibition and extended the right of every state to regulate our alcohol,” Donley said in reply.

“Right. And so we’re the only state that doesn’t allow this, though, right?” Estes said of off-premise sales.

“That is correct, but that’s a policy decision made by you as a legislature,” Donley said.

Neither of the bills have moved out of committee yet.

This post has been corrected to reflect the spelling of Donley’s name. 


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