In last week’s installment, I lamented the fact that neither the House of Representatives nor the Senate had included some version of the Craft Beverage Modernization and Tax Reform Act of 2017 in their respective tax proposals.

But I may have spoken too soon.

This past Tuesday, Senate Finance Committee Chairman Orrin Hatch (R – UT) issued his markup of the tax bill. And on page 93 of the linked .PDF we find the following section:

The proposal institutes a tiered rate for distilled spirits. The rate of tax is lowered to $2.70 per proof gallon on the first 100,000 proof gallons of distilled spirits, $13.34 for all proof gallons in excess of that amount but below 22,130,000 proof gallons, and $13.50 for amounts thereafter. The proposal contains rules so as to prevent members of the same controlled group from receiving the lower rate on more than 100,000 proof gallons of distilled spirits. Importers of distilled spirits are eligible for the lower rates.

The proposal expires for taxable years beginning after December 31, 2019.

So what are we to make of this?

Well, for starters I would suggest that the inclusion of this language is proof positive (pardon the pun) that small distillers throughout the U.S. should be supporting their local guilds and the American Craft Spirits Association. [Full disclosure – I am personally a member of the ACSA and a member of Education Committee of the organization – so I’m admittedly biased.] The ACSA has tirelessly been pushing for passage of federal excise tax relief for small distillers for several years now. The fact that this provision is included in the Senate Finance Committee Chairman’s markup of the tax bill is – in my opinion – a remarkable success. That success is magnified when you consider the fact that the Chairman is an adherent of the Mormon faith and – as such – presumably abstains from all alcohol. Simply put, Senator Hatch isn’t necessarily the guy you’d expect in the Senate to take up the mantle of small distilleries. So put a check mark in the win column for the industry and the lobbying efforts of the ACSA and its members.

But before we start celebrating, we need to put a few things into perspective.

First, the fact that these provisions are in Hatch’s markup does not mean that they will become law. If history is any guide, the current political landscape may make it difficult for Congress to pass any legislation – let alone meaningful tax legislation. According to one estimate, Congress has roughly a 70% chance of agreeing upon and passing a tax bill. Of course that means there is a 30% chance that they won’t.

Second, we should ask the question of what distillers will really gain if the bill is passed with Hatch’s changes. The proposal would be effective for spirits removed from bond after December 31, 2017. But the decrease in FET would also sunset for tax years beginning after December 31, 2019. That means that – unless subsequently extended, the tax total benefit any small distillery could achieve under Hatch’s revision would be $1,080,000 for each of the 2018 and 2019 tax years (100,000 proof gallons multiplied by the per proof gallon reduction in the FET or $10.80).

That certainly isn’t anything to sneeze at. It is a meaningful amount of money. But many small distilleries aren’t going to achieve anything near that level of savings because either they don’t produce that much spirit or they’re in the process of laying up spirit for aging and have no intention of taking it out of bond at this time.

But perhaps more importantly, two tax years simply isn’t very long. You wouldn’t necessarily start a new business with confidence if you knew that your taxes were going to go up by $1,080,000 per year in year three even if you weren’t any more successful in that year than you’d been in year two. In fact, you might start looking around for other opportunities.

The tax relief promised by Hatch’s markup isn’t lasting relief. It is essentially a tax holiday. Of course it could be the case that future congressional action would extend the benefit of the FET reduction. But it is perhaps just as likely that Congress’ ability to get anything accomplished will not be substantially greater in mid 2019 than it is now – meaning that distilleries would face substantial uncertainty as to their tax burdens starting in 2020.

And really, that is the biggest problem here. Perhaps the only thing truly worse for these businesses than an unduly burdensome tax is uncertainty. A horrible tax you can plan for. Uncertainty is, well, uncertain. It’s hard to decide whether to expand, buy that additional facility, hire on those additional personnel, if you can’t predict your costs. And without that clarity – Hatch’s benefit falls flat.