Five questions regarding excise tax automation with Kevin Rasmussen, co-founder of EthoTech.
Q. For beginners, how does excise tax differs from sales tax?
A. Excise tax differs from sales tax in two main areas: Sales tax appears on the invoice and is paid by the customer. Excise tax does not appear on the invoice, as it is paid by the brewery or distributor.
Sales tax is calculated as a percentage of the invoice sale amount. Excise tax, in the craft brew industry, is calculated as a dollar amount times the quantity sold. This is further complicated because the taxing unit of measure may differ from the selling unit of measure. For example, you may sell in cases but be taxed in gallons. Both the tax rate and taxing unit of measure are set by each tax authority.
Q. If a brewery has an excise tax problem in their accounting system, how would VicinityBrew solve that issue?
A. Our VicinityBrew module allows you to create federal, state, county, and municipality tax authorities, along with the tax periods and rates for each tax authority. When a sales document is created, the excise tax owed to each tax authority is automatically calculated, based on the customer address and line items that appear on the document. Our product reminds you when it’s time to pay tax to a particular tax authority and even creates a payables transaction if you desire.
To sell bottled beer within the jurisdiction of a particular tax authority, a brewer must obtains a Certificate of Label for each beer that will be sold. Each Certificate of Label must be renewed each year; otherwise, the brewer is prohibited from selling that beer until they re-certify. These renewals are not excise tax, but since they are paid to tax authorities, our product includes reminders for paying label renewals and can also create a VicinityBrew payables transaction for the renewal.
Q. How long would it take for that company to implement your excise tax module?
A. The time to implement can be as little as a couple of hours or as long as a few days and is dependent on several factors, including:
The number of tax authorities to which a craft brewer is subject. The tax rate complexity for those tax authorities. The number of customer addresses to which they sell. The complexity of their unit of measure schedule setups.
Q. Which states have the highest excise tax rates?
A. Tennessee, Alabama, Georgia, Alaska, and Hawaii have the highest rates in the United States. Tennessee is the highest at $1.17 per gallon. So, it really makes for an uneven playing field for craft brewers. For example, the state of Wyoming is only $0.02 per gallon.
Q. Has the unprecedented growth of the craft beer market in the last three years effected the demand for automated excise tax?
A. Absolutely! For craft brewers, excise tax becomes an issue when they begin selling into multiple states, as the complexity increases given the varying rates, tax periods, and rules governing tax within different states. Additionally, timely payment of label renewals becomes an issue when multiple tax authorities are involved.
Kevin Rasmussen drives the product development, customer support and information technology side of EthoTech. Graduating from Illinois State University in Normal, Illinois, he earned a Bachelor of Science degree in mathematics focusing on theoretical and applied mechanics. Along with his degree, Kevin holds key industry certifications including: Microsoft Certified Systems Engineer [MCSE], Database Administrator [MCDBA], Integration Developer for Great Plains Edition [CID] and Installation Specialist for Great Plains Edition [CIS]. Prior to EthoTech, Kevin contributed to executive leadership teams for two Microsoft ISV Partners and was responsible for the development of a large vertical application franchise management solution.
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In our last post, we discussed the business challenges of micro and regional breweries producing less than 30k barrels per year (BBL). Now let’s take a look at the mid-level group of craft breweries who produce between 30k and 80k BBL.
In this group, you will find some well-known brands such as Highland Brewing Company, Flying Dog Brewery, and Oskar Blues. Here you have a need for a robust and extensive financial and distribution application. Applications such as Microsoft Dynamics® (there are four flavors of Dynamics) with third party specialty applications such as VicinityBrew is a powerful solution for these breweries. These larger breweries may have an onsite IT support team and their own in house server. These companies have the infrastructure and bandwidth to support a traditional ERP system.
The number of Breweries between 30k to 80k BBL is booming. This market segment has seen the most rapid growth over the past two years. Understandably, not every craft brewery strives to be a 100k BBL company. But if you are a brewery that has broken the 30k BBL per year mark, you have most likely run into these production challenges.
- Quality Tracking
- Costing Analysis
- Production Scheduling
- Bar Code Data Collection
Challenge: Quality Tracking
Solution: Breweries need a solution that has the ability to store and track all QC test results by brew and recipe, so you can review test results over time and review the number of tests performed by recipe. Brews requiring significant adjustments can be easily identified and the recipes themselves can be reviewed. Also, this gives brewers the ability to adjust recipes based on QC data on the fly.
Challenge: Costing Analysis
Solution: Look for an ERP system that allows you to calculate accurate production costs and compare them to actual sales activity. This makes it easier to identify lower-margin brands. By tying an actual production cost to a brand, such as a seasonal brew, you can then take corrective actions if needed by increasing the selling price of the product or, if necessary, discontinuing a poor preforming recipe. Having this depth of cost analysis allows breweries to be able to see the actual profit per unit.
Challenge: Production Scheduling
Solution: First of all, get out of excel! At this point, if you are producing over 30k BBL, you need an forecast that integrates with production. Software such as Vicinity Brew, allows you to run production scheduling and material requirements planning (MRP). It does this by tracking data from sales order to forecast to brews. The production schedule can be derived from an MRP generation that includes sales orders and forecasts, so all demand for an item is considered during scheduling. If the demand for a given item is not reflected on the schedule, the system automatically notifies the scheduler. Breweries need to be able to make scheduling changes in real time and need to communicate these changes to as many departments as necessary. Keeping everyone informed helps departments set priorities for the production, quality and purchasing.
Challenge: Bar Code Data Collection
Solution: There is nothing magical about bar code data collection. Simply find the best solution for your use. That is to say, look for an ERP system that supports bar code data collection across the entire application. Craft Breweries who are producing over 30k BBL may be needing to record production data on finished goods packaging in real time. A word of warning: when looking for an ERP solution for your brewery, make sure there is a solid integration with a reputable bar code data collection application such as Panatrack. If you already have an ERP solution make sure your systems are well under control before adding bar code data collection. Not doing either of these may cost your brewery greatly in the future. As they say “Bar code data collection is a tremendous thing. A bad process gets repeated at the speed of light”. So make sure your manual process is buttoned up prior to automating it with bar code data collection.
Check out these videos to see more information. Our next part will discuss the operational challenges of craft breweries who are over 100k BBL.
- “From Passion to Profits, Taking your Brewery to the Next Level” Part One (vicinitybrew.wordpress.com)
- “IT’S NOT YOU, IT’S ME….” Breaking Up with QuickBooks (vicinitybrew.wordpress.com)
- Craft brewing booms in Minnesota (miamiherald.com)