Editor's note: This article has been updated since its original publication to reflect a correction. While some companies water down their cider concoctions or use "inferior apples" to avoid paying the higher tax, Far From the Tree Cider does not engage in this practice.
SALEM — Hard cider is fermenting a rebirth in Massachusetts, but its makers say they're being squeezed by hefty taxes that are stifling competition and making it difficult to expand.
Under current state law, cider with less than a 6 percent alcoholic content is taxed at 3 cents per gallon. But if the brew's alcoholic content exceeds 6 percent, it's taxed at the same rate as champagne and sparkling wine, at 70 cents per gallon.
Cider makers say that's keeping them from growing and competing against craft beer brewers who are also expanding into the niche market. Cider houses are backing a Beacon Hill plan to let them make more potent brews without paying the higher tax rate.
"To be taxed like champagne is unfair and nonsensical," Jessica Henry, a representative from Far From the Tree Cider in downtown Salem, told a legislative committee on Wednesday. "Our cider sells like, and is consumed like, a beer and not a champagne."
Far From the Tree, which produces ciders from apples ranging in alcoholic content from 6.9 to 8 percent, expects to pay $59,000 next year on taxes to produce about 70,000 gallons.
Henry said other companies often water down cider concoctions or use "inferior apples" to avoid the higher taxes. Far From the Tree, however, does not.
"Taxes should not encourage businesses to lessen the quality of our product," she said. "Leveling the tax playing field would allow us and other cider makers to invest more in our business and stay competitive with states like New York, which has also lowered its tax."
New York state's cider tax rate is currently just over 3 cents a gallon.
'It's a real burden'
Sen. Joan Lovely, D-Salem, who co-sponsored the bill, said increasing the allowable alcoholic content from 6 to 8.5 percent will ease the tax burden on 18 existing cider makers in Massachusetts, most of which are small craft operations.
"It's a fledgling industry and we want to see it grow here in Massachusetts," she said.
Lovely said a loss of about $277,000 in tax revenue to the state is minimal compared to the economic impact of cider makers.
Rep. Paul Tucker, D-Salem, sponsored a House version of the bill.
"It's a real burden for these start-up cideries," he said. "These are mostly small businesses that could use the help to get going."
The bill must be approved before the end of the legislative session Dec. 31, otherwise it will have to be re-filed next year. Lovely said she's "confident" about its chances.
Last year Congress lowered federal excise taxes on many cider products. The changes, which go into effect on Dec. 31, increase the allowed alcohol content of apple and pear ciders from 7 to 8.5 percent. Under the change, most ciders will be taxed as beer — at 22 cents per gallon.
Currently ciders with alcohol content exceeding 7 percent are taxed as wine, on a sliding scale with rates as high as $1.07 per gallon.
Cider makers nationally have been diluting their products to reduce the alcohol content, said Mike Beck, president of the U.S. Association of Cider Makers and owner of Uncle John's Cider Mill in Michigan.
"These changes will be a huge step forward for the cider industry," he said.
An uptick in popularity
The new federal law also updates an arcane section of the Internal Revenue Service code, dating to the end of Prohibition, which taxes cider at a higher rate applied to champagne if its carbon-dioxide content, or carbonation level, exceeds a certain level.
Cider was the beverage of choice during colonial times, but it was trampled by New England Puritans who cut down and burned apple orchards used to make the brew. In the early 1900s, the temperance movement stamped out production ahead of the Volstead Act.
"There's been a huge uptick in the popularity of hard cider in recent years, which has grown alongside with the craft beverage industry," said Miranda Russell, co-owner of Russell Orchards and Winery in Ipswich, which has been making and selling hard cider since the 1980s.
"It's a big draw," she said. "People might come to check out our ciders and wines, but pick up other items that we grow at the farm."
Russell's hard cider has an 8 percent alcoholic content, so the orchard pays the higher state and federal taxes imposed on sparkling wines.
"Taxes are a burden but that's the cost of doing business," Russell said. "And Massachusetts loves to get its tax money."
While cider is still a niche market, the rise in sales in recent years has been eye-catching.
According to Impact Databank, which tracks statistics for the wine, beer and spirits industry, the top 10 cider brands in the U.S. collectively grew by 64 percent in 2014.
Big brewers such as Anheuser-Busch and Boston Beer Co. have taken notice, introducing cider brands of their own.
Chase Brooks, co-founder of Harvard Cider, said the state's cider industry is competing with craft brewers who can sell beer with a higher alcoholic content at lower prices because they pay less taxes. That puts cider makers at a competitive disadvantage.
"It hurts us on the shelf because we need to keep our prices higher to keep our business afloat," he said. "And it hurts our perception with the public, which is comparing us to craft beers. They wonder why we can't offer that to them at a more competitive price."
Christian Wade covers the Massachusetts Statehouse for The Salem News and its sister newspapers and websites. Reach him at email@example.com.