On a busy day at the Patent 5 distillery in downtown Winnipeg, wheat from a Manitoba farm is being turned into vodka, while a truck is picking up spent grains to haul away to a local hog barn.
Local people are working in the micro-distillery, which makes vodka, whisky and gin, and sales of the finished products keep local money in the local economy.
Micro-distillers receive no relief from high commercial excise tax rates and that’s been a problem, said Patent 5 owner Brock Coutts.
“It’s really kept us from growing,” said Coutts, as the distillation process hisses behind him and vats of fermenting milled grains foam in front of him in the century-old building.
Coutts thinks there should be about 10 micro-distilleries in a place the size of Winnipeg, if the situation were similar to that of Canadian micro-breweries and American micro-distillers. But high taxes on spirits prevent it.
“We’d like to see parity at least with our U.S. counterparts, or a real solid dialogue with the federal government to really look at the excise tax,” said Coutts.
Micro-distillers have launched a national campaign to push for alcohol tax rates that treat alcohol used for making spirits the same as alcohol used for making beer, at least for the small amounts used by micro-brewers and micro-distillers.
Right now U.S. distillers pay $1.77 per proof litre, while Canadians pay $12.736.
The micro-distillers want that changed to $2.50 per litre of absolute alcohol for the first 100,000 litres of production, $6.50 for 100,000 to 500,000 litres of production, and then to the full $12.736 for amounts of more than 500,000 litres.
That way micro-distillers would receive an equalizing tax break, but government revenue wouldn’t suffer too greatly because the break is capped.
Micro-brewers got a tax break a few years ago and since then the industry has greatly expanded, becoming a major part of the beer business.
“We’ve seen an explosion in craft breweries,” said Coutts.
Similarly, U.S. micro-distillers have seen production surge and demand soar since the U.S. government slashed excise taxes for micro-distilleries. The U.S. rate is one-seventh Canada’s.
In Canada, not only do higher excise taxes apply, but provincial governments add to the costs.
“What we’re looking for is some fairness in the way the excise tax is levied on craft distillers,” said Coutts.
“We pay an excise tax and the provincial governments apply their mark-up on top of it, so it’s a very punitive tax,” said Coutts.
The excise tax is the second largest cost for distilleries, he said, so the problem is not insignificant.
Distillers are hoping that the federal government, whoever it is after Sept. 20, will change the rate to match that paid by U.S. competitors, and so that it is not so much higher than that paid by microbrewers.
The distillers say the industry will be handicapped if it doesn’t get more supportive tax rates, the sort that have helped micro-brewing become such a success story.