Publisher's note: The author of this post is Kari Travis, who is social media specialist for the Carolina Journal, John Hood Publisher.
Tax rates, strict ABC rules may be revisited in 2017 General Assembly session
BELMONT Three years ago, Robbie and Caroline Delaney quit their jobs to become full-time rum distillers. But while their Muddy River Distillery has done well, the couple pays 59 percent of their revenue in state and federal liquor taxes, and must comply with a long list of strict ABC rules - causing them to wonder if their entrepreneurial move was worth the hassle.
Robbie, a former construction worker who now runs his business without the support of any outside investors, said he works constantly, and adds, "I'd like to not pay [nearly] two-thirds of my revenue in taxes." He said the salary for him and his wife "comes off the last month's revenue for the whole year. We work for the government, and then we skim a little bit off the top."
The Delaneys aren't the only owners of North Carolina's fledgling family-run distillery concerns to run into burdensome regulations from the state's Alcoholic Beverage Control board. But these small-scale distillers have found several advocates in the General Assembly who hope that removing unnecessary barriers to entrepreneurship can allow legal distilleries to join the state's noted craft breweries and wineries as homegrown success stories.
The idea to open a distillery was first hatched in 2011 when Robbie, who had been traveling extensively for work, read an article about how Charlotte's microbreweries were growing, and about how craft distilleries were about to become popular in the area as well.
He latched onto the idea and decided to build a still of his own.
"I don't think he really thought of it as a business, but he just came home and started doing it illegally in the kitchen in 2011,"
said Caroline, a former accountant who now handles Muddy River's business affairs. "I was like, 'You're crazy! Don't blow anything up. I have no idea how this works.' And he wanted to scale up. He thought it was fun, ... and he really fell in love with the process."
Caroline Delaney leads an Americans for Prosperity sponsored tour of Muddy River Distillery, telling North Carolina lawmakers about how ABC liquor regulations make it difficult to operate in the market. (CJ photo by Kari Travis)
Robbie experimented with recipes for a few months before the couple decided to find a different location for his still. They secured federal and state permits and began to distill rum legally on the weekends - in a 500-square-foot space inside an old mill they'd discovered on Craigslist.
It was during that time that they began to realize the severity of North Carolina's alcohol regulations.
"Every drop of liquor that comes into North Carolina goes into a warehouse in Raleigh, and then the ABC stores order by palette from there,"
Caroline said. "So we have to ship them all of our [alcohol], and then go talk to the ABC stores as well and get them to order it."
Though securing sales through individual ABC stores is difficult, a recently passed law that enables distilleries to sell one bottle per person per year to onsite customers has made it easier for Muddy River to make money on premises, Caroline said.
Prior to the law's passage, customers would come to the distillery expecting to taste some rum and buy a few bottles, Caroline said, and were surprised to find they couldn't do either.
"They were like, 'But I can buy wine at the winery!' They came in assuming that they could buy, most of the time,"
Caroline said. She said they usually gave two tours every other weekend and then would have to send their potential customers to an ABC store.
Since the law's passage, the couple has sold roughly $30,000 worth of rum from their distillery's bottle shop, and has increased the number of facility tours they offer, as well. But while that spike in sales is an improvement, state liquor taxes alone have seen $10,000 cut from that revenue stream, Caroline said.
And taxes aren't the only thing that continue to burden small distilleries like Muddy River. ABC rules also require that Caroline and Robbie give a full tour of the distillery to customers prior to all tastings or alcohol sales.
"I'd like to be able to sell more bottles,"
Caroline said. "As the law is written, we have to legally give a tour before we can sell liquor. So when people come in, and they just want to try something new, they may not want to go through a whole tour. ... If we're here during the week, we'd be glad to have them come in and buy a bottle. But we can't stop what we're doing and give a tour for 30 minutes."
"It's not like a brewery where you can hang out,"
Robbie added. "It's an educational experience, and then you leave. So it's pretty lame."
He said customers can't hang out and enjoy a cocktail, so, for many, it's not worth coming.
Additionally, Caroline and Robbie are not allowed to sell bottles of liquor on their website, a rule that keeps them from distributing their product more widely.
"I think one of the things we didn't realize was the impediment just to get product to market,"
said Rep. Jason Saine, R-Lincoln, following a May 17 Muddy River Distillery tour hosted for state legislators by Americans for Prosperity, North Carolina. "We've got a homegrown industry here. Folks who are taking their own personal capital, their own sweat equity, and really just putting a lot back into it."
He said legislators need to find a way to streamline the process for distillers. "The regulations are in place. There is plenty of regulatory effort here,"
he said. "Our job is also to protect the general public, but I don't think that's the issue here. The real issue is antiquated regulations that are keeping good business people from getting their product to market. And I think that's something we could look at very quickly and try to facilitate that in a quick fashion."
While there are no official proposals for ABC rule changes under consideration at the legislature, it's an area lawmakers say they are open to revisiting during 2017's General Assembly session.
"We thought the odds of getting the last bill through were really slim, but it flew through," said House Majority Leader Mike Hager, R-Rutherford, of last year's bill that allowed distilleries to begin selling limited quantities of product on premises. "So I think the odds [of further deregulation] are pretty good. The last bill we ran ... was the first sales of liquor outside an ABC store since Prohibition, so that kind of kicked the door open. But we want to open it up a little bit more, now."
Hager also said the legislature likely would re-evaluate state liquor taxes as part of any future ABC regulation rollback.
In the meantime, while Caroline and Robbie have joked about moving their distillery to South Carolina, they plan to continue making rum in North Carolina - even if it means they keep earning only $9.79 on a bottle that sells for $23.49.
"We're loyal because we're Carolina Rum, and our customers are awesome,"
Robbie said. "There is no incentive to stay here,"
said Robbie. But he said they have hope the law will change.
"We should never be encouraging business to leave our state and go to the next state over. There is a duty to the public, particularly in this industry. We are talking about alcohol, and folks have serious concerns. We need to understand that, and take that into account,"
Saine said. "But we need to understand that we've got to move toward a freer market and allow people to do what they need to do."