GUEST ARTICLE: Outdated law should be changed to support post-pandemic job growth in kombucha industry
Kombucha - the fermented tea that has garnered a cult following in the last twenty years for its unique taste and probiotic benefits-- has the potential to add significant numbers of stable jobs over the next five years, if only Congress would update a 100-yr-old Prohibition-era tax law.
Today, most kombucha sold in the United States contains trace amounts of alcohol due to the fermentation that occurs during production. The alcohol, a natural preservative, acts to protect kombucha’s live cultures, as well as the safety of consumers, from unwanted pathogens.
Kombucha is not an alcoholic beverage, and people do not drink it for its trace alcohol, which rarely exceeds .5% alcohol-by-volume (ABV). Rather, they drink it because it is naturally rich in probiotics and acids that aid in digestion. For context, popular light lager beers contain about 3.2 percent ABV, while the ABV levels of most craft beers are 5 percent or higher.
Nevertheless, for the purpose of assessing federal excise taxes on beer for its alcohol content, the Internal Revenue Code defines the term 'beer' in a way that encompasses kombucha, if the kombucha contains 0.5 percent or more of ABV.
Kombucha brewers have the sword of Damocles hanging over their heads
For kombucha brewers, this federal law presents a real dilemma. While their kombucha may be leaving the facility below the 0.5 percent ABV threshold, trace alcohol can increase slightly - in some cases above 0.5 percent ABV - if the product is exposed to temperature fluctuations on distribution trucks or grocery store shelves after it has left the kombucha brewery.
Under the current law as written, kombucha brewers have the sword of Damocles hanging over their heads. That is, their kombucha can leave the brewery untaxed, only for its ABV level to rise slightly above 0.5 percent once out of their control, thus becoming subject to the federal excise taxes.
For years, hard cider makers faced a similar problem. Federal law meant that hard cider could not exceed 7 percent ABV. However, cider makers - particularly small cider makers - could not easily manipulate the ABV levels, due to the natural variation of the apples and cultures used to make cider.
Congress recognized the hardship placed on cider makers, and addressed this problem in 2015 by increasing the allowable alcohol content in cider from then-limit 7 percent to 8.5 percent.
While cider is an alcoholic beverage and kombucha is not, the two products nonetheless share a similar issue: the alcohol level in each can vary naturally due to fermentation.
The KOMBUCHA ACT
As with cider makers in 2015, this dilemma and the anxiety it causes kombucha brewers would be easily remedied through the enactment of a similar common-sense update: the bipartisan KOMBUCHA Act (H.R. 2124/S. 892) now being considered in Congress. The bill - sponsored by House Representative Earl Blumenauer (D-Oregon) and Senate Finance Committee Chairman Ron Wyden (D-Oregon) -creates an exemption in the tax code for kombucha, so long as the ABV level of the product is 1.25 percent ABV or lower.
Traditionally made kombucha seldom tests above 1 percent ABV, as kombucha cultures are not suited to high levels of alcohol, so this level allows kombucha brewers to feel confident distributing their products by providing ample buffer room to shield them from the threat of this tax.
As many kombucha producers have reported limiting their growth in order to protect themselves from this risk, as well as facing burdensome costs of testing to comply with the arbitrarily restrictive limit, the KOMBUCHA Act would open opportunities for the more than 600 US brewers to take advantage of the demand that has exceeded their supply for years.
As many industries, especially those in the food sector, are still struggling to recover from the impacts of the last year, this potential is nothing to sniff at.
Kombucha Brewers International has organized a series of KOMBUCHA Act Days of Action on September 14-18, 2021, during which kombucha producers across the US will be emailing representatives, posting on social media, and sharing a petition to raise awareness for the bill and its profound benefits on the future of live cultured foods and beverages.
We are hopeful that Senator Wyden and Congressman Blumenauer and their colleagues on both sides of the aisle can succeed in getting this legislation enacted into law this year. If they do succeed, they'll pave the so-far rocky path for a new and rapidly growing industry that promises to add thousands of jobs with benefits to the economy at a time when they are desperately needed.
Kombucha Brewers International is hosting its Days of Action September 14-18 to gather support for the KOMBUCHA Act on its petition, which can be viewed here.
Hannah Crum is president of trade association Kombucha Brewers International (KBI), which represents the commercial kombucha tea bottled beverage category globally.