Faitha Hearing

Faitha Hearing, right, pours a flight for Nate and Stacey Hill, of Wenatchee, Washington, who have been visiting Cannon Beach Distillery for more than five years.

CANNON BEACH — Mike Selberg’s Cannon Beach Distillery has exuded success since opening in 2012, racking up awards and adulation for his craft liquors.

But Selberg, who will sell or shutter the distillery in the coming year before relocating to Colorado, said the state tax structure has made it impossible to make any headway as a small, craft distiller.

Mike Selberg labeling

Mike Selberg, who started Cannon Beach Distillery in 2012, hand-labels and signs every bottle he sells.

“It’s just frustrating — really, really frustrating,” he said. “It should have worked. It really should have worked.”

Selberg, a biology major in college, started his artisan microdistillery as a one-man operation in 2012. He chose Cannon Beach, where he spent most of his summers as a child and wanted to find a way to live year-round. He has been able to hire several employees but still takes part in every aspect of the business, from distilling to labeling and signing every bottle of liquor he produces.

Since opening, Selberg has focused largely on creative, one-off batches. Cannon Beach Distillery makes almost all its sales out of its tasting room on Hemlock Street.

Even though the state never handles the liquor sold there, it still collects a 33% tax on every bottle, he said. Selberg estimates he has paid nearly $600,000 in taxes to the state over the past seven years.

“We are one of the smallest alcohol manufacturers in the state, yet we produce as much state revenue as some of the largest breweries and wineries in Oregon,” he wrote in a letter to customers about the imminent sale or closure. “In short, I cannot afford to maintain this style of distillery in Oregon, and I refuse to be cowed and controlled in how I can run my business.”

In addition to taxing his tasting room sales, Selberg blames the state for taxing liquor based on its retail value rather than the quantity of liquid in a bottle. The tax structure disadvantages small, craft distilleries like his that focus on quality and creativity in favor of larger operations that focus on turning out lower-cost, industrially produced liquor, he argues.

Mike Selberg awards

Mike Selberg takes pride in his award-winning small batches of craft liquors, but said the state tax structure has made it impossible to get ahead as a small, craft distiller.

Selberg’s concerns over tasting room taxes on craft distilleries are mirrored by Larry Cary, who started Astoria’s Pilot House Distilling with his wife, Christina, in 2014. Buoy Beer Co. recently acquired Pilot House in a bid to help the startup distillery and find a new area for growth amid a tightening beer scene. Cary remains a co-owner.

“It’s all based on the way the state taxes us,” Cary said of craft distillers’ troubles. “I don’t know why the state feels we need to be their ATM machine.”

Without Buoy Beer’s help, Cary said, he would just be scraping by like Selberg. The brewery provides more money, administrative support, machinery and even mash for whiskey, allowing Cary to focus on producing his liquors.

Since being acquired by the brewery, he has been able to take more bottles to the state liquor warehouse, expanding Pilot House’s statewide distribution.

“I was never able to do that on my own,” Cary said. “I mostly kept the distribution local.”

Brad Irwin, founder of Oregon Spirit Distillers in Bend and president of the Oregon Distillers Guild, lamented over the imminent loss of a well-respected distiller like Selberg.

“Nobody can survive a 33% taxing burden,” he said. “We lost 24 tasting rooms last year from people in similar situations.”

The Oregon Distillers Guild backed state Senate Bill 1564 last year to eliminate fees on the first $500,000 made in tasting rooms. But about halfway through the legislative session, it became clear the bill wasn’t going anywhere, he said. The bill was opposed by the League of Oregon Cities, worried about municipalities losing tax revenue passed on from the state, and by Hood River Distillers, by far the state’s largest liquor manufacturer.

The state needs money, and Gov. Kate Brown has made clear she doesn’t want to lose any revenue, Irwin said. But “if we’d put these same taxes on beer and wine, we wouldn’t have these important industries,” he said.

Cannon Beach Distillery awards

Mike Selberg’s craft liquors have racked up awards and adulation, belying what he described as a struggle to survive as a small, craft distiller amid high state taxes.

Part of Selberg’s impetus for moving comes from his engagement last year to his girlfriend, Courtney O’Donnell, who works as an orthopedic surgeon in Denver. He travels back and forth between the two states and said the two had agreed to keep Cannon Beach Distillery going. But under Colorado’s tax structure — based on quantity of alcohol in a bottle instead of retail price — Selberg estimates he’d be paying one-fifteenth of the taxes.

Cannon Beach Distillery might have been more successful had it focused on one or two of its most popular whiskeys or rums, Selberg said, but his focus has always been on creativity and breaking new ground.

Selberg plans to run Cannon Beach Distillery through at least the end of the year. He’s been hesitant to take on partners focused on mass production, but said that is likely the only model under which he’ll find a buyer.

“I just don’t have any interest in working in that kind of business,” he said. “I’m interested in selling that kind of business, as long as I don’t have to be the one coming in, distilling the exact same thing every single day. That’s my own personal nightmare.”

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