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THE HERALD BUSINESS JOURNAL    EVERETT, WASHINGTON

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Jennifer Buchanan / The Herald 
(click to enlarge)
John Lundin, owner of Bluewater Organic Distilling, walks past his copper alembic kettle as it slowly distills vodka May 5 in Everett.
Jennifer Buchanan / The Herald 
(click to enlarge)
Organic vodka trickles from the cooper kettle at Bluewater Distilling.
Jennifer Buchanan / The Herald 
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John Lundin measures out some vodka to test its proof Sunday afternoon at Bluewater Distilling.
Jennifer Buchanan / The Herald 
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A traditional hand-hammered copper alembic kettle bubbles away at Bluewater Organic Distilling.
Jennifer Buchanan / The Herald 
(click to enlarge)
Owner John Lundin measures the alcohol content of his organic vodka.

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County's craft alcohol producers get organized 5/7/13
 
Jim Davis, Editor
jdavis@heraldnet.com
Published: Thursday, May 9, 2013

Tax break bill could aid state's craft distillers

U.S. Rep. Rick Larsen has proposed a lower tax for small distilleries

EVERETT -- Local craft liquors springing up on store shelves could get a little cheaper, and the distillers would have a better chance to survive and thrive, if a new bill is approved in Congress, proponents say.

The bill, sponsored by U.S. Rep. Rick Larsen, D-Wash., would cut federal taxes for distilleries that produce fewer than 60,000 gallons per year. Freshman Democratic Rep. Suzan DelBene, who represents eastern Snohomish County as part of the state's 1st Congressional District, is a co-sponsor.

Small distilleries currently pay the same federal tax as larger distillery companies that mass produce their liquor, while small breweries and wineries pay a significantly smaller tax rate than their larger competitors, Larsen said.

It's important here because Washington state now has more than 60 craft distilleries. That's the most of any state in the nation, Larsen and DelBene said at a press conference at Bluewater Organic Distilling in Everett on May 2.

A fifth of vodka made by Bluewater currently retails for about $29.50, owner John Lundin said. The change could knock between $2 and $3 off the price per fifth, he said. This would cut his costs at the outset and potentially increase sales, he said.

"The market even for high-quality products is very much price driven, and being more competitive and being able to present a high quality product at a lower price is huge for us," Lundin said.

Craft distilled spirits are generally more expensive than the name brands.

"It's like everything handmade -- it tastes better, it costs more," said David Hopkins, co-founder of Skip Rock Distillers of Snohomish. The company makes vodka, white whiskey and liqueurs.

Hopkins said the tax cut could help his business "tremendously."

The bill would cut the current federal tax of $2.14 per fifth of hard liquor down to about 64 cents. Because the tax is levied at more than one distribution point along the way, the savings would likely be greater than the reduction of $1.50 per bottle, Lundin said.

Also, "it could mean the difference between signing a distribution deal or not, and this is really a volume game," he said. "Our margins are always going to be tight. It's a huge difference for us."

Larsen said the matter came to his attention last year when he visited Bluewater, located next to the Scuttlebutt brewery on the Everett waterfront, on a tour of small businesses.

There are 12 small distilleries in his district, he said. The 2nd Congressional district stretches from the Snohomish County-King line to Bellingham along the water.

DelBene, of Medina, said there are nine craft distilleries in her district, which runs from King County to the Canadian border, east of Larsen's.

Most of the craft distilleries fired up after a new state law in 2008 cut the annual license fee to $100 a year for small distilleries, compared to $2,000 for larger ones. A distillery must obtain at least half its ingredients from within the state to receive the break.

That's all the more reason to help those businesses, said DelBene, former director of the state Department of Revenue.

"It's the multiplier effect when many of the ingredients they're using are from right here in Washington state," she said.

Neither Larsen nor DelBene said they'd received much feedback from their colleagues in Congress regarding the prospects of the bill, but have no reason to believe it wouldn't pass.

A similar bill recently failed in Congress but it set the threshold for small distillers at a higher volume, Larsen said.

He said it might take awhile to get the bill through.

"It takes longer to pass a bill than it does to make a bottle of gin here at Bluewater," he said.

Bill Sheets: 425-339-3439; sheets@heraldnet.com.