Tax Too Lax?

Bob Kerivan of Bridgeview Vineyards in the Illinois Valley accepts the Founders Award at the 2009 Oregon Wine Symposium Industry Awards Dinner. Kerivan would like to see the gallonage tax applied
to a greater number of wineries throughout the state. Photo by Andrea Johnson.

By Karl Klooster

Are too few Oregon wineries paying tax on the wine they produce? Are beer brewers and distributors also getting off too easy in Oregon?

Robert Kerivan, co-owner of Bridgeview Vineyards in Cave Junction, thinks so. And he’s asking the Oregon Legislature to do something about it.

In a letter dispatched to every lawmaker, he set forth his arguments and proposals in some detail. He estimated that his proposal would produce $35 million a year in new revenue — a welcome boost to badly depleted state coffers.

Recapping the current taxation picture, Kerivan explained that Oregon has a tax of 67 cents a gallon. But only Oregon wineries producing more than 100,000 gallons annually, or selling at least 40,000 gallons annually within state boundaries, are subject to it.

In practice, that means only a couple dozen of the state’s nearly 400 wineries pay any gallonage tax at all.

The limits were established in 1972 to aid a fledgling industry just getting off the ground. He asserts that they should be adjusted to reflect today’s reality.

Last year, Bridgeview produced 178,500 gallons of wine, which packaged into 75,000 cases, making it the state’s fourth largest producer. Its Blue Moon label, applied to distinctive iridescent blue bottles, has helped raise the identity of Oregon wines across the country.

Kerivan doesn’t think his winery should be penalized for its size. He feels it’s time the state leveled the playing field.

He would like to see the exemption eliminated entirely. All Oregon wineries should be required to pay the tax, regardless of how much wine they sell and where they sell it. He wants the tax applied on the same basis to wholesale distributors marketing wine made outside of Oregon as well.

On the brewing side, all beer sold in Oregon, whether produced in state or out, is taxed at $2.60 per 31-gallon barrel, or 8.38 cents per gallon. Unlike the wine industry, there is no exemption for small breweries.

That tax, he contends, is long overdue for an increase.

“For years,” he said, “the distributors and beer lobbyists have been handing out money to every senator and representative who will accept it. They are lobbying hard to keep the beer tax low.”

And their efforts have proved quite successful, which a comparison to neighboring states shows. Washington charges $8.08 per barrel, California $6.20 and Idaho $5.65 — two to three times what Oregon levies.

What’s more, those three states all collect a sales tax as well, which produces $40 more a barrel in California and Washington, and $30 more a barrel in Idaho.

There’s no disputing the fact that Oregon is collecting far less in beer taxes than its neighboring states. But how do our wine taxes measure up?

A bit of basic arithmetic tells us that a standard 750 milliliter wine bottle holds 25.4 ounces, or 19.8 percent of a gallon. If it is taxed at all, then it is taxed 13.3 cents, or 0.33 cents per ounce.

A 12-ounce bottle of beer runs 9.4 percent of a gallon. Therefore, its tax is 0.79 of a cent or 0.066 cents per ounce. It doesn’t take a mathematical genius to see that the wine tax is four times the beer tax.

The top 20 Oregon producers, already subject to taxation, accounted for 1.7 million of 2009’s total production of 2.5 million cases. That works out to 68 percent.

If the other 32 percent of wineries were taxed, it would suggest that revenue to the state would be increased by 47 percent — 32 divided by 68 — or almost half.

However, much of the wine tax paid to the Oregon Liquor Control Commission each year comes from such domestic giants as Gallo and Robert Mondavi and foreign leviathans like Australia’s Yellow Tail and Spain’s Concha y Toro.

Therefore, although the tax paid by Oregon wineries would increase by some 47 percent, the total revenue received from all wines would be considerably less.

For those interested in where this tax revenue goes, the OLCC is merely a passthrough. The money is then dispensed to the general fund, cities, counties, mental health, alcoholism and drug services and the Oregon Wine Board.

Kerivan recommended that the increased revenue go to schools.

Of the OLCC’s $178.1 million in net revenue last year, $16.8 million came from its beer and wine gallonage taxes. A rough estimate puts the Oregon wine industry contribution at about $2.8 million or 16.5 percent of the total.

Just extending the wine tax to smaller producers, without also increasing the beer tax, would add about $1.3 million. In other words, it doesn’t amount to that much in the big picture — only about 8 percent.

So, how do other Oregon wineries view Kerivan’s proposal?

Premium producer Ken Wright Cellars, whose Pinots rank among Oregon’s very best, started out making just a few hundred cases a year. The winery is now at the 10,000-case level, making its annual production about 24,000 gallons, which means it is still exempt.

Wright expressed his gratitude to the state for giving him a tax break in the early years, when he was struggling to survive.

“That tax break made a big difference when I was working alone and plowing everything I made back into the business,” he said. “It allowed me to grow and hire additional people.”

Most of the state’s wineries started out exactly that way and new ones are still beginning based on the model of one or two key people doing essentially everything to get their feet on the ground.

Based on his own quarter century of experience, Wright said that after you reach about 3,000 cases, or 7,500 gallons annually, you can no longer do it all yourself.

He said he could probably live with a gallonage tax at this point. However, he thinks some sort of low-end exemption still makes sense — say, at 7,500 to 10,000 gallons, which works out to about 3,000 to 4,500 cases.

That’s a mere fraction of the current 40,000-case trigger for in-state sales. The revenue difference would be far more meaningful left in the hands of tiny wineries than the minuscule contribution it would make to the state treasury.

For anything approaching $35 million in additional revenue to be realized, the vast majority would have to come from the beer side.

Were the legislature to seriously consider such an increase, we could count on outrage from the beer industry and its lobbyists. But given the revenue collected by other states, their arguments fall far short of compelling.

Another aspect of Kerivan’s proposal is an increase in the amount of the wine gallonage tax earmarked for the Oregon Wine Board’s annual promotional budget.

Last year, it was just 2 cents a gallon, which produced slightly more than $300,000. He would like to see it raised to 7 cents, which would give the board more than $1 million a year to promote Brand Oregon to the wider wine world.  

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