PENNSYLVANIA LEGISLATURE Big brewers say tax deal has got them over a barrel

The state's smaller beer makers say the tax breaks help them expand.
HARRISBURG (AP) -- Some of the country's largest beer manufacturers are challenging a provision that quietly passed the Legislature in December, giving annual tax breaks of as much as $200,000 to the makers of Rolling Rock, Yuengling and Iron City beers.
Credits against the state malt-beverage tax for the purchase of machinery and equipment for making and selling beer were first established in the 1970s, but they were scaled back in 1989 to cover only companies producing fewer than 300,000 barrels a year.
The lower figure was a compromise that settled a Commonwealth Court lawsuit, filed by Miller Brewing Co., challenging the special treatment for in-state breweries on grounds it violated the U.S. Constitution's interstate commerce clause.
In a budget compromise pushed through the Legislature during a marathon session in late December, that threshold to qualify for the tax break was lifted to 1.5 million barrels a year -- slightly more than the production rate at D.G. Yuengling and Son Inc. in Pottsville, the largest Pennsylvania-based brewery.
Miller's request
In a letter to the Pennsylvania State Brewers Association, which represents the state's larger breweries, a Miller Brewing Co. lawyer asked the group's members to voluntarily forgo the sudden windfall and support repeal of the measure.
"We are not interested in adversely affecting the true small Pennsylvania brewers. We think that a legal action would result in the elimination of the entire tax credit based upon its unconstitutionality," wrote Miller lawyer Garrett Reich.
"At the 300,000-barrel level, Coors didn't object," said Coors Brewing Co. spokeswoman Laura Sankey. "But with the expansion of the limit to 1.5 million barrels, it creates an issue ... of competition."
Twenty-one Pennsylvania breweries with an average annual production of 12,642 barrels claimed a total of $344,000 in malt-beverage tax credits in calendar year 2001, the most recent figures available.
Spurring growth
At booming Troegs Brewing Co. in Harrisburg, co-owner John Trogner said the tax credits helped him handle last year's 70 percent surge in sales to 5,500 barrels. Troegs purchased two new brewing tanks and three pieces of packaging equipment with the money in 2003.
"It's definitely been a huge contributor to our ability to grow," Trogner said.
The new law was initiated by Pittsburgh Brewing Co. vice chairman Joseph Piccirilli, who said he enlisted the help of local legislators so that his 260-employee brewery could "do more projects in '04 than we anticipated."
Piccirilli said he had not been aware of the 1989 compromise, "and really couldn't care less. Because I wasn't there. I have to do what's best for my brewery today." Pittsburgh Brewing produced about 425,000 barrels last year of Iron City, I.C. Light, and Augustiner.
Barrel limit
To get Republican support for the brewery tax-credit expansion, Democratic negotiators agreed to a barrel limit that would also accommodate Yuengling and Latrobe Brewing Co., maker of Rolling Rock, said J.P. Kurish, press secretary to Senate Democratic Leader Robert Mellow.
"It's not surprising a business tax break would get out of hand in generosity, given the recent history of the Legislature," Kurish said.
Yuengling Executive Vice President David Casinelli said his company does not expect to plan to voluntarily give up the tax credit. Casinelli said the $200,000-a-year break does not amount to a competitive advantage.
"You're talking about a 40-million-barrel brewer versus a million-barrel brewer," Casinelli said. "It's ludicrous."