Brewery that supported B.C. cabinet minister gains millions on disputed tax break

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A B.C. brewery owned by a staunch Liberal Party supporter who recently made an in-kind donation of nearly $27,000 to a fundraiser for cabinet minister Rich Coleman stands to benefit to the tune of millions of dollars from taxation changes recently announced by the Liquor Distribution Branch.

An extraordinary caucus meeting was held Tuesday in response to questions raised by Liberal MLAs who relayed concerns from commercial brewers angered by the decision. Following that meeting, Mr. Coleman, minister responsible for liquor policy in B.C., said the amendments were announced in error and are not in force.

At the same time, however, the minister told The Globe and Mail that the Pacific Western Brewing Co. is poised to close its doors this Friday unless it gets promised tax relief from government. Mr. Coleman said he expects to make a decision in the next 48 hours, leaving the prospect of layoffs at the Prince George-based brewery in the air.

"What the branch sent out was incorrect," he said Tuesday in an interview. "I haven't finished the transition plan. It's not complete."

That news was a surprise to Mark Jiles, partner of prominent Liberal insider Patrick Kinsella, whose firm, Progressive Strategies, is the registered lobbyist for Pacific Western. Reached Tuesday, Mr. Jiles said the changes, set out in a memo to the industry on Nov. 14, were welcomed by his client and he was not aware they were sent in error.

Kazuko Komatsu, the brewery's owner, donated two one-week stays at a resort in the Bahamas valued at $26,600 as auction items for a fundraiser held in Mr. Coleman's riding of Fort Langley-Aldergrove on Nov. 8. Mr. Coleman said the auction items fetched little cash.

The amendment to the province's mark-up policies, announced to beer suppliers on Nov. 14, instantly drew the attention of the National Brewers' Association, which arranged a meeting with a small group of B.C. Liberal Party backbenchers to protest against the decision. According to sources, representatives from the association attempted to draw a line from Mr. Kinsella to the donation Ms. Komatsu made to Mr. Coleman to the policy change.

The new rules would allow a company like Pacific Western to make inroads into the market share of the province's larger breweries, which are taxed at a higher rate. Concerns expressed by the association over the optics of the change were enough to prompt a brief discussion among the MLAs about possibly getting a special prosecutor involved to look into the matter. Instead, the group decided to seek answers from Premier Christy Clark's chief of staff Dan Doyle.

On Tuesday, caucus members were invited to dial into a telephone conference where Mr. Coleman explained how he is handling the issue.

The policy change concerns the mark-up that the government charges breweries in B.C. based on their annual production. In B.C., most of the breweries are either small, cottage entities or big, national brands such as Molson and Labatt. Pacific Western would be the first to benefit from the changes, because they are poised to hit a production limit of 160,000 hectolitres this week. Without a change in policy, the company would be taxed at a higher rate on its entire production.

Sources say the amount of tax that the company would have had to pay to increase its production from 160,000 to 200,000 hectolitres would be $35-million. Under the amendment announced earlier this month, the tax bill would be $25.5-million – or an annual savings of nearly $10-million, according to an industry insider.

David Heffelfinger, chief financial officer for Pacific Western, did not dispute those estimates.

The Liquor Distribution Branch refused to take questions on the matter Tuesday. Representatives from the National Breweries' Association did not return calls. Ms. Komatsu was said to be travelling and unavailable for comment.

Disclosure of party contributions have only been updated to April 19 of this year, but the records filed with Elections BC show that Kazuko Komatsu and Pacific Western Brewing Co. have been steady contributors to the B.C. Liberal Party. In 2011, which would typically be a slow year for election fundraising, the company made a dozen donations to the party adding up to nearly $25,000.