Massachusetts-Based Shelton Brothers Slams a Door on New York Breweries
Venerable import and distribution company Shelton Brothers, of of Belchertown, Massachusetts, has been invaluable to beer lovers across the United States. They have been visionary in their quest to bring us the finest beers from Belgium since way before Belgian was cool. If you’ve enjoyed a Cantillon, Dieu du Ciel or Mikkeler and you don’t have a passport, you have the Sheltons to thank.
Now, Shelton Brothers can claim yet another accolade: stalwart defenders of the New York State Constitution.
We New York residents are thankful that, in 2006, upon being refused State Liquor Authority approval to distribute six English Christmas beers due to (admittedly absurd) label art issues, Shelton Brothers took a deeper look at New York Liquor tax law and noticed a chance to save us from a harrowing miscarriage of constitutional justice. Being the good corporate citizens that they are, the Brothers immediately filed a lawsuit stating that the excise tax exemption on New York breweries violated the constitution of the Empire State.
It works like this. Each brewery generally brews a range of beers, for example, a lager, an IPA, and a porter. In addition to that, a brewery might produce multiple one-offs and seasonal beers over the course of a year. This line extension is vital to keeping things interesting to drinkers, responding to trends within the mercurial craft beer industry with agility, and growing a beloved brand. Each of those individual beers has to be registered with the SLA (State Liquor Authority, not the goons who jacked Patty Hearst). Until now, out-of-state brewers were subject to an excise tax of $150 to register a beer for sale in New York, whereas small brewers within the state were exempt.
Going way beyond its originally claimed purpose of getting SLA approval to pimp their beers with Santa cartoons on their label, the Shelton Bros lawsuit went after this tax exemption. Guess what? They won. Now every small New York Brewer will pay a fee that’s currently $150, and unlikely to ever decrease, for each individual beer registered for sale, regardless of whether the batch size is 10,000 barrels or 10 barrels. Or less.
What does that mean for New York Brewers? Their costs have just skyrocketed. Coupled with the rapid pace of industry expansion, a whitewater current breweries must keep pace with in order to remain viable among their competitors, breweries could face extra costs in the tens of thousands of dollars, just to be allowed to bring their beer to market in the bar down the street or, for that matter, in their own retail rooms. This might not be too worrisome for big guys like Genesee and F.X. Matt, but it could slaughter brewpubs and small breweries, making remaining open an unattractive business decision for some and possibly discouraging new startups.
It could also force a shift away from creativity as brewers shy away from the cost of expanding their lines. This would force New York State into permanent second tier status in the beerosphere even as Senator Charles Schumer trumpets his “New York Farm Brewery” bill designed to reward our great breweries for using our great agricultural products in their great beers.
So who ultimately loses? If you guessed “The New York State Beer Drinker,” you got it in one. Breweries can’t afford not to expand, so they’ll just pass the cost on down to li’l ol’ you. Congratulations, your pint just got more expensive. How much damage to your wallet remains to be seen.
But who ultimately wins? Well, a great deal of finger exercise can be gained by pointing at the SLA who, according to Shelton Brothers Principal Dan Shelton, already charges the most egregious tax on out-of-state beers in the nation. They stand to rake in a ton of extra revenue as they put the smackdown on hundreds of small beers, but, technically, abiding by the constitution is their duty as a state agency.
More than a small amount of scrutiny has to fall on the lawsuit initiators themselves. Shelton Brothers just checkmated an entire State’s worth of growing breweries competing with his line of imports for tap and shelf space. Since New York State happens to contain New York City, that’s a huge market advantage. It’s enough to give the impression that, just possibly, this suit wasn’t really ever about throwing a tantrum because four beer labels got rejected.
One of the great things about the craft beer community was its closeness and communicative nature, and the sentiment that the most vicious competitive practices were reserved for use against the giant multinational gigabreweries. It’s a sad sign of the maturation of the industry that those holds are no longer barred.
Fortunately, New York State beers are better than ever, and, even if you’re a lover of the Belgian beers Shelton Brothers import, perhaps this would be a good time to make a conscious decision to reach for, say, an Ommegang instead of a brand out of their portfolio. I used to love its tartness, but, for me, Cantillon has never tasted so sour.
“Well, a great deal of finger exercise can be gained by pointing at the SLA who, according to Shelton Brothers Principal Dan Shelton, already charges the most egregious tax on out-of-state beers in the nation”
HUH? New York State’s excise tax on beer ranks 37th in the nation. Even with the New York City tax included, it’s just 22nd. Perhaps the label registration fee is unruly for him because his portfolio is so large, but if he’s making outlandish claims like that in the wake of this, you’ve got to think he’s got some sort of grudge against New York.
Maybe not a grudge, but a hunger for a larger slice of the pie?
It’s more than just the $150 label fee. NYS had exempted NYS breweries from paying excise tax on the first 200k barrels as well. This is $.14 per gallon plus, in NYC (where Shelton would have a bigger impact) another $.12 per gallon for a total of $.26 fee per gallon. For every keg coming in that equates to a fee of $4.03. That will add up fast.
Now, in addition to the $150 per label fee the NYS brewer could also pay the excise tax if they are self-distributed. If they aren’t then the distributor pays but either way it will be reflected in our bottom line. This means for that last batch of Krysztoff brewed at CB’s the company will pay $150 for the label, $43.40 for the excise for a total of $190.40 added to a batch of beer. Let’s say CB’s could brew Krysztoff for $700 in malt, hops, water, etc. in variable costs. Fixed costs will remain out of this discussion for now. The $190 increase amounts to about a 27% increase in variable costs. If that was passed on at $7.99 bottle should we now expect that bottle to cost $11? Painful.
It would be nice if NYS bars and stores took a stand and refused to carry Shelton Brothers products. This doesn’t benefit them, it doesn’t reduce the costs of Shelton Bros. products it only increases NYS costs and most likely reduces sales.
Hooray.
Seems like the more relevant thing for NY State breweries (and drinkers, for that matter) to do would be to lobby the legislature to get that obnoxious fee structure changed.
So, Shelton Bros. rightly called out the SLA on an unconstitutional (as in U.S. Constitution) regulation which interfered with interstate trade. Good for them. Don’t blame the plaintiff. There are other methods by which NYS can promote and protect craft beer.
The simplest is to just say that any brewery which produces less than X barrels of beer per year is immune to excise tax and that simple labels (i.e., just text) which just list Brewery Name and beer type, plus legally required info, don’t need label approval. That way, Smallguy microbrewing doesn’t have to go through the trouble of getting label approval for Smallguy IPA, Smallguy American Pale Ale, Smallguy Winter Warmer, etc.
Let’s be clear. The SLA regulation isn’t just anti-small brewer, it is also anti-CREATIVE brewer. While bigger players like Sam Adams can better absorb the costs and hassles of registering seasonal labels and the like, it’s a burden on any brewery which produces a rotating line-up of products and regularly releases new products. By contrast, players who haven’t produced a significant new product in years aren’t penalized.
And, if the state, or the SLA, wanted to stick it to Shelton, while giving a leg up to local breweries, I think it would be perfectly legal, and very much in the consumer interest, to require brewers/importers to clearly label their packages with the day, month and year the beer was packaged. As a consumer of commercial beer, I’m sick and tired of getting sick and tired imports.
Maybe craft beer drinkers should band together and form a NYS state version of CAMRA!
“The simplest is to just say that any brewery which produces less than X barrels of beer per year is immune to excise tax”
Thomas, isn’t THAT what the SLA was doing and the court just said it was unconstitutional?
This was a greed/power play by Shelton Brothers pure and simple.
Thomas - Saying any brewery smaller than X barrels will dramatically reduce the amount of taxes NYS collects from neighboring state brewers and distributors. It is unlikely they will adopt such a plan.
Plain text labels will hurt a smaller brewer’s ability to compete. Take Three Heads Brewing for example. The artwork on their labels plays a significant role in competing for eyes on shelves. Sure, a lot of us in Rochester may drink it because we know the brewers, but in other cities they are up against every other beer maker.
Everyone seems to be forgetting that Shelton Bros. started out simply wanting Santa’s Butt to be on shelves. When it didn’t get it’s way they hired a lawyer and the SLA backed down. Again, it COULD have ended there. Shelton Bros. then continued on with an addition suit to add the taxes and fees. This was unnecessary as they had for YEARS been paying those fees and never brought a lawsuit.
They got vindictive and in turn I feel that there should be an appropriate response.
Finally, requiring brewers to label the date everything was bottled would hinder the smaller brewers in NYS as well. I’ve worked on CB’s bottling line. I can only imagine the fun that would be there if each bottle had to have the label tagged with the date. It might keep Shelton from distributing the smaller foreign beers but even they are better equipped to label the date if they wanted.
I think NYS wanted to actually HELP brewers they would reduce the costs that impact them in other areas based upon their production levels. I am sure there are creative ways to get around it as well, but in the end Shelton Bros. is still as low as AB-InBev if not lower from its vindictive actions.
Who are the REAL winners here? The bar owners. The excise tax alone will cost the brewery $2.17/keg. A $5/keg price hike to cover the tax and Brand Label Registration cost equates to $0.04/pint. When is the last time your local pub raised their pint prices by anything less than $0.25? Do the math.