Nashville’s growing community of beer enthusiasts, with its sophisticated palates and award-winning brews, seems determined to add “Craft Beer Capital of the South” to the city’s many monikers.

There are 11 craft breweries in the Nashville area – Yazoo, Blackstone, Fat Bottom, Jackalope, Boscos, Rock Bottom Brewery (Big River Grille rebranded), Jubilee, Little Harpeth, Slow fire (Spring Hill), Mayday (Murfreesboro) and Turtle Anarchy (Franklin) – and events like the upcoming East Nashville Beer Festival sell out within hours and offer craft beers from brewers across the country.

Though the community and brewmasters are thirsty for a continuation of the craft brew boom, beer advocates say Tennessee’s wholesale beer tax – the highest in the country – has turned away regional craft brewers and beer distributors that could be making a major economic impact.

“Tennessee has a big black mark next to its name for craft brewers,” says Rich Foge, president of the Tennessee Malt Beverage Association “It’s reached a tipping point. The demand and interest is so great, so changing the tax would only make the environment better and add more jobs.”

The Beer Tax Reform Act of 2013 seeks to change the beer tax from price- to volume-based, says Rep. Cameron Sexton (R-Crossville), co-sponsor of the bill.

A public “Fix the Beer Tax’’ rally will be held Monday, March 11, 5-8 p.m., at The Standard (167 Rosa L Parks Blvd, Nashville). It is one of a series of pro-reform rallies across the state.

Ben Bredesen shows the less glamourous side of of beer brewing, hosing down the floor of of his Fat Bottom Brwery in East Nashville as he finishes another batch.

-- Photo: Lyle Graves | Nashville Ledger

Though beer demand fell 5 percent from 1999 to 2010 in Tennessee, the price-based tax has continued to rake in more revenue each year.

Last year, the wholesale tax generated $130 million statewide, which is distributed to the general funds of local municipalities. Davidson County received $15 million of those funds.

“We don’t want to give them a decrease in revenue, but this makes it revenue-neutral,” Sexton explains. “This tax makes it based on inflation. There are brewers driving through Tennessee to Mississippi and Alabama, because of the beer tax.”

Brewers ‘being stifled’

Tennessee and Kentucky are the only two states in the country that base the wholesale beer tax on price, Foge says.

Beer in Tennessee is subject to three taxes:

• $4.29 beer barrelage tax (state)
• 17 percent of wholesale price per 31-gallon barrel (state)
• $18 per barrel (federal)

Combined, the taxes can total as much as $37 per barrel cut profitability for craft brewers.

The price-based tax, which was introduced in 1954, has played a role in the state’s bid to have Sierra Nevada and Fat Tire distributors based in Tennessee.

Blount County in East Tennessee lost out its chance to be the Sierra Nevada’s Eastern headquarters in 2011, in part, because of unfavorable state regulations, company officials said.

Though beer retailers, brewers and distributors would still be paying more than most states, the reform act would mean the tax would no longer grow with inflation.

“It’s the compounding tax on a tax,” Foge adds. “The small craft brewer is being stifled.”

‘TN High Tax Ale’

Village Pub & Beer Garden co-owner Jesse Hamilton says the beer tax does not just affect those in the industry, that Nashville’s economy as a whole could see the benefits of tax reform.

The Filling Station in 12 South has a wide selection of local and non-local beers in bottles and on tap for filling growlers. Below, Yazoo growlers await filling.

-- Photo: Lyle Graves | Nashville Ledger

His brewpub opened in East Nashville’s Riverside Village in 2010 and he will open a growler filling station called The Hop Stop in late spring.

“High tax rates are a drag on economic activity, period,” he says. “In this particular case, this tax is keeping Nashville from reaching its full potential as a craft brew mecca.

“We have an opportunity to add a new chapter to our civic identity that will drive tourism and job creation. This tax must not stand in the way.”

Yazoo Brewing owner Linus Hall has seen the wholesale beer tax skyrocket since he opened his brewery in Marathon Village in 2003. The tax is especially tough on small brewmasters due to the premium ingredients used in their brews, he says.

“Our beers are more expensive to make and are priced accordingly, meaning more taxes are added to our beers than to cheaper beers,” Hall adds.

“It’s already a challenge to convince consumers to trade up to our beers, without having a tax policy that makes the difference even greater.”

Yazoo and Sparta-based Calfkiller brewery have teamed to create a protest brew called The Beacon, billed as “The Tennessee High Tax Ale,” to raise awareness about the state’s high beer tax.

“Consumers really have no idea, because they just pay the amount for the beer,” says Ben Bredesen, who left his position as vice president of the health care software firm Qualifacts to open Fat Bottom Brewery in East Nashville last year. He brews about 30 barrels a week.

“For every $170 I make per barrel, the government gets $35,” says Bredesen, the son of Phil Bredesen, who served two terms each as Nashville mayor and Tennessee governor.

“That’s unbelievable,” he adds. “If we can get this tax stuff under control, we’ll see a lot more craft brewers coming to Nashville.”

Growing despite tax

Even with the burden of compounding taxes, Nashville’s craft brew scene – and the craft brewery scene nationally – continues to flourish.

Craft brewer sales were estimated to be $8.7 billion in 2011, up from $7.6 billion in 2010, according to the Brewer’s Association.

Hall’s brewery has won a gold medal at the 2004 Great American Beer Festival in the South German-Style Hefeweizen/Hefeweissbier category. It also has led the way for the local breweries that have opened since 2003.

Three Nashville-area breweries, Yazoo, Jackalope, Fat Bottom and Blackstone, will soon collaborate on a beer all the breweries will offer in their tap rooms. Part of the proceeds will benefit the Tennessee Craft Brewers Guild, a non-profit organization that promotes the craft brewing industry and culture.

“When we started the brewery, there were four brewpubs in town. Now, there are restaurants that only serve local and regionally brewed beers in Nashville,” Hall says.

“Most of the local brewers have carved out our own identities. We try to make the best beers we can and to be a big part of our local community.”