The United States Association of Cider Makers (USACM) applauded the passing of the law, will go into effect on Dec. 31, 2016. The organization said it will make American cider makers more competitive on the international market and increasingly flexible.
Internal Revenue Code (26 USC Section 5041) has been amended to allow US cider to be “more in line with international standards,” the group said.
Three main components
David Cordtz, CEO and cidermaster of California’s Sonoma Cider and a board of directors member of the USACM, told BeverageDaily three key changes have been made to how cider will be taxed.
The first change was upping the alcohol by volume (ABV) percentage of ciders produced to 8.5% before they would be grouped into a higher tax rate. In the previous version of the law, any cider 7% ABV or up was taxed at $1.17 while any cider at 6.9% or lower was taxed at $0.22.
“The weird thing about that - and one of the reasons why it was seen as logical change - is that if you take cider apples and crush them and press them into juice, then add yeast and it ferments, the alcohol you get from typical cider apple is higher than 6.9%,” he said. “We had to dilute it with apple juice or add water or all these different things.”
A second big change in the CIDER Act is the allowable carbonation, which has been changed from 3.92g per liter to 6.4g per liter.
“This is a law that didn’t really make a whole lot of sense and there was not a lot of reasoning behind having it there,” he said. “It was restrictive to the growth of the category and that got changed to a much higher level, much more consistent with beer.”
The final big change was lowering pear’s cider tax rate from consistent with wine, at $1.07 per gallon, to consistent with other ciders, at $0.226 per gallon.
“It’s huge,” Cordtz said. “A lot of people sell pear cider and it’s very popular. To have this be penalized because its pear cider as opposed to apple made sense in no way.”
Industry growth imminent?
Mintel has noted that the US hard cider market has increased 278% from 2010 to 2014; will these rule changes help the industry grow even further?
“We’re still seeing really great growth in the category,” Cordtz said. “The percentages are less [than they have been] but I feel like this is really going to encourage the category to grow [even more]. I don’t think everyone is going to run out and drop their prices; that doesn’t usually happen. But it means prices probably will not go up for a while.
“I can’t speak for everyone in the industry, but it’ll be a factor with our company Sanoma Cider. We’ll keep price consistent for 2016 and maybe further. That’s one effect I think it will have.”
Another effect, he believes, is an increased demand and greater production of cider apples and pears, as there will be more incentive for small and large growers alike to invest in planting these fruits across the US.
As far as his own company, Cordtz believes the rule changes will be a “shot in the arm,” especially because their best seller is pear cider.
“Pear is the second bestselling flavor in the cider category, so to have that get changed is a big deal to a lot of people,” he said. “There are some cideries that only make pear cider.”
More changes coming?
Going forward, Cordtz said there will need to be “many more changes that need to happen” with taxation of cider. One notable change he wants to see be made is lowering taxes on ciders featuring any fruits that are not pear or apple, including citrus, raspberries and blueberries. These ciders are immediately bumped into a higher tax bracket, Cordtz said.
“That’ll have to be round two,” Cordtz said. “There are many more changes that need to happen. We’ll start working on those. These three we felt were [the most] significant as an industry that we needed to include in the act.”