SCHUMER-AUTHORED BILL THAT WOULD BE MAJOR BOON FOR NY APPLE PRODUCERS BY MODERNIZING DEFINITION OF HARD APPLE CIDER HAS CLEARED KEY SENATE COMMITTEE – SCHUMER URGES FULL SENATE PASSAGE OF BILL THAT WOULD LOWER TAXES ON PRODUCT, IMPROVE ABILITY TO COMPETE IN FOREIGN MARKETS, INCREASE SALES FOR OVER 650 APPLE GROWERS IN NYS

NY Has Hundreds of Apple Growers & Increasing Number of Hard Cider Producers – Proposal Would Boost Business for Existing Producers, Help New Growers Add Highly Popular Hard Cider to Product Line, Improve Ability to Compete

Schumer: Bill Would Put NY at the Core of Hard Cider Production

Today, U.S. Senator Charles E. Schumer announced the Senate Finance committee passed the CIDER Act, legislation Schumer authored that allows hard cider to be taxed at the hard cider rate – also the same rate as beer – rather than the higher rates for wine and champagne at which it is often taxed. Now that this bill is heading for a full Senate vote, Schumer urged his Senate colleagues to pass it in order to boost the sales for New York’s increasing number of hard apple cider producers and allow the hundreds of apple growers in the state to expand their business and add this popular craft beverage to their product line.

Schumer explained that the alcohol content of New York’s hard cider fluctuates greatly due to sugar content, and current law often forces it to be taxed at a higher rate, preventing it from being labeled as hard cider. Compliance adds a significant financial burden to producers and consumers, and an unpredictable nature to the business, making it less attractive for potential new cider producers. As a result, in 2013, Schumer first introduced the Cider, Investment & Development through Excise Tax Reduction Act – the CIDER Act – in an effort to modernize the definition for hard cider in the Internal Revenue Code (IRC). Schumer’s proposal increases their allowed alcohol by volume from 7 percent to 8.5 percent, encompassing significantly more hard cider products and allowing them to be labeled and taxed like hard cider, rather than wine or champagne. The Senate Finance Committee voted to report the bill favorably for consideration by the full Senate, and Schumer is now pushing for the bill to come swiftly to the Senate floor for a vote and urging his colleagues to pass it.

“Today the CIDER Act has cleared a major hurdle, and I will not stop pushing until this legislation has come to a full floor vote and received the President’s signature,” said Schumer. “Right now, federal tax laws make it extremely costly for producers and consumers alike to produce, market and sell their hard cider products, thereby preventing hundreds of apple growers and producers around the state from fully benefiting from the stable income that comes with this product. Put simply, this means apples that would otherwise be sold at a loss or thrown away are ripe for the cider press. There is incredible economic potential here that we must tap into. That is why I have not stopped fighting to pass the CIDER Act, which would finally update the definition of hard cider in the tax code by ensuring all products can be labeled and taxed for what they actually are, all while increasing New York growers’ and producers’ ability to compete overseas.”

Schumer’s bill, the CIDER Act, updates the definition for hard apple and pear cider in the IRC by increasing their allowed alcohol by volume from 7 percent to 8.5 percent and increasing their allowed carbonation levels, encompassing significantly more hard cider products and allowing them to be labeled and taxed like hard cider, rather than wine or champagne. In 2013, Schumer first argued this would allow the over 650 apple growers and 20 existing hard apple cider producers at the time to expand their business. As these numbers continue to increase each year, Schumer said it is important now more than ever for New York State growers and producers to able to add this increasingly popular craft beverage to their product lines. New York is the second largest apple producer nationwide, harvesting a total of 29.5 million bushels annually from over 650 farms and 41,000 acres across the state. In recent years, thanks to the growing popularity of hard cider, many apple producers have turned to producing this craft beverage as a method to keep apple orchards profitable, generate new economic development opportunities, and attract a new visitor demographic to their farms.

Producing hard cider offers major benefits to apple orchards, whether they choose to increase production and add additional acres of “hard cider trees,” or if farmers simply use existing products to diversify their business. Most importantly, apple and other fruit growers who have suffered from frosts and bad weather in recent years have benefited from adding hard cider into their business model, as it is not nearly as susceptible to these unpredictable occurrences. Some producers grow specific varieties of apples to produce hard cider, while other producers can use apples from their crops that have been damaged by storms. Hard cider can also be made from apples that are high quality, but that are not as aesthetically pleasing to sell on a farmer stand, and that would otherwise be sold at a loss or thrown away. In addition, hard cider is a value-added product, and can reign in significant value for producers than simply selling the same apples. Hard cider is sold around the same price every year; therefore it gives producers a stable source of income when apple crops suffer due to weather and other unforeseen factors. New York apple producers are increasingly interested in producing smaller, artisanal batches of hard cider, but cite the cost and difficulty to comply with the IRC definition as significant impediments to expanding their businesses. Schumer said the federal definition of hard cider under the IRC is restrictive to both current producers as well as those hundreds of growers that would like to enter production of this craft beverage.

Schumer explained that the alcohol content of New York’s hard cider fluctuates greatly due to sugar content, and current law often forces it to be taxed at a higher rate, preventing it from being labeled as hard cider. Compliance adds a significant financial burden to producers and consumers, and an unpredictable nature to the business, which makes it less attractive for potential new cider producers. By providing this new definition for hard apple and pear cider, increasing the alcohol by volume from 7 percent to 8.5 percent and carbonation level allowed, producers and growers can encompass significantly more hard cider products. This will allow their products to be labeled and taxed like hard cider, rather than wine.

Under current federal law, the outdated definition of hard apple and pear cider only allows for up to 7% alcohol by volume before it is taxed as wine, and only a certain level of carbonation before it is subject to the champagne tax. Schumer said that many of New York’s cider producers are small craft cider operators, and because they rely on natural products, there is very little predictability and control over the precise alcohol content of their product. In addition, some consumers of hard apple cider expect a high level of carbonation as a substitute for beer, and current federal tax law doesn’t permit the desired amount without classifying the product as champagne. In both cases, hard cider often falls into a different beverage category, which makes non-compliant ciders subject to higher alcohol excise taxes, and complicates labeling issues. This makes the product more expensive for producers and consumers alike, and can make the sale and marketing of cider significantly more difficult. Schumer explained that consumers at local bars and restaurants are buying these products alongside beer, which means that virtually all ciders should be under $15/750ml bottle, and simply cannot compete when subject to higher excise taxes such as those in effect with champagne and wine. To illustrate, current law definition results in a tax of as much as $1.07 per gallon if the alcohol content is more than 7% and as much as $3.30 per gallon if it contains more than 39% carbon dioxide by volume. With the definition change, all hard cider will be taxed at the same rate of $.23 per gallon, equivalent to the excise tax on beer. The new definition will also apply for the smallest producers to ensure they can maintain their discounted $.17 per gallon tax on all hard cider production.   

Schumer’s proposal also addresses existing tax issues related to carbonation levels in hard cider, and would put the new definition in line with that of the European Union, so producers can better compete with European products abroad. This would be vastly beneficial for a variety of reasons, mainly because it expands the amount and type of hard apple cider products that can still be taxed and labeled as such. First, it would increase the level of alcohol content from 7% to 8.5%, to ensure that those craft artisanal batches with higher alcohol content are still subject to the hard cider tax, rather than wine. Second, the proposal would remove carbonation limits to ensure the products aren’t subject to the higher tax levels on champagne. Third, by putting New York hard cider products on a level playing field with those in the European Union, domestic products can better compete in European markets where fruit-based ciders are extremely popular.

According to IBIS World, an analyst of the beverage industry, sales of domestically produced cider have more than tripled to a projected $601 million in 2012, from $178 million in 2007. There has been a distinct spike in consumption of hard cider across the country in recent years, and the demand for specialty apples grown for hard cider production has also been very high, with prices from $20 to $50 per bushel. For this reason, Schumer believes his bill will spur a long-term trend towards the increased profitability growth of hard cider in the apple and beverage industries, just as the farm wineries and microbreweries sectors have grown since the 1980s. As the hard cider industry grows, production facilities could catalyze ecotourism and provide a reliable source of income for New York apple growers, similar to the farm wineries that now comprise a significant sector of the State’s grape industry.

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