4:58pm

Fri June 22, 2012
Beer

New York's craft breweries bubble on thanks to tax credit deal

Nick Matt ducks into side doors and up staircases while rattling off the history of the F.X. Matt Brewery in Utica.

The brew house is like a second home to Matt because it was his grandfather, F.X., who first opened the brewery 124 years ago.

If you're racking your brain to see if you've ever heard of F.X. Matt Brewery, try this: they make Saranac ales and lagers. For the older generations, does Utica Club ring a bell?

Hopping along

When Nick Matt, now CEO of F.X. Matt Brewing, started making the Saranac brand in the 90s there were about two-dozen microbreweries in the whole state.

Today, the state liquor board recognizes 124 breweries (here's a slightly shorter list of New York Brewers Association members) and there are another 50 or so in the planning stages, according to the brewers association.

The state's microbrew industry is slowly inching up on the better-known Finger Lakes wine industry, which has about 300 wineries.

According to the brewers association, New York beer makers tap $200 million in annual revenues.

A big reason for the ability for small breweries to flourish was a gift of sorts from the state back in 1991. That was when New York granted brewers a waiver on excise tax and labeling fees.

Cut off

But that growth almost came to a halt earlier this year after the state supreme court upheld a lawsuit by a Massachusetts brewery and deemed the waivers to be illegal.

"On March 30 they told us about this and they said, 'Start paying the excise tax effective March 28,' " recalls Matt. "Everybody's like, 'You mean next year?' 'No, two days ago.' It was kind of a shock."

The reinstatement of the tax would have forced breweries to pay 14 cents on every gallon they produce. It takes 15-and-a-half gallons to fill a keg, so that's an extra $2.17 per keg.

Plus the labeling fee would require beer makers to pay $150 a year for each different style of beer they make.

For a larger brewery like F.X. Matt, it would total an extra $350,000 each year. For Rochester's Genesee Brewery it adds up to around $900,000.

But it had the potential to be an even worse hit, relatively speaking, for the many smaller breweries and brew pubs.

"The margins are so slim in this industry," says David Katleski, president of the New York Brewers Association. "Especially when you're dealing with raw materials that fluctuate based on how nice Mother Nature is to you."

Katleski makes 70 different kinds of beer at his Empire Brew Pub in Syracuse. The extra fees and tax would have forced him to halt hiring, he says.

Katleski just purchased 22 acres in nearby Cazenovia with plans to open a brew house and grow his own hops. But when he got word of the tax, he started contacting real estate brokers in Pennsylvania and New Jersey to open the brew house there instead.

A way around

But before Katleski decided to move, he first made some calls to New York's politicians.

"I think the legislators and the lawmakers in Albany recognized that not only are we considering [moving away], but other companies would be considering doing that as well," he says. "They didn't want that to happen."

In the waning days of this year's legislative session, Albany announced a bill that gets around the lawsuit.

The state will reimburse the full excise tax breweries now have to pay for the first 15,000 gallons made. The state will pay 4.5 cents per gallon after that. The label fee will also be reimbursed.

Lawmakers didn't want to cut off an industry that employs 3,500 people and is growing quickly, Katleski says.

Since co-founding the New York Brewers Association eight years ago, Katleski says the fast growth of craft brewing has allowed the association to become more influential.

"We're symbolic"

The formerly industrial neighborhood around the F.X. Matt Brewery in Utica is now dotted with empty warehouses and vacant homes.

But several bars now line a neighborhood street.

There's also a distillery opening soon. It's all an offshoot of the rising popularity of Saranac beer and the weekly Saranac Thursdays outdoor concerts.

"We're somewhat symbolic of this area," says Matt. "I think we're looked at as one of the key things that this area is proud of."

The brewery is growing too. It's in the midst of a $4.5 million addition of an anaerobic digester - a green energy project that will generate 40 percent of the brewery's electricity.

It's a sign the brewery doesn't plan on slowing down anytime soon.