A local company that makes bitters is moving its distilling expansion to the United States as its owners say Ontario's bill to overhaul distillery taxation comes up short.

Justin Frape is making moves to establish his business in Minnesota due to high Ontario taxes for craft distilleries.

1 / 1 Justin Frape is making moves to establish his business in Minnesota due to high Ontario taxes for craft distilleries.

THUNDER BAY -- Justin Frape wasn't bluffing when he said Ontario's high taxes on craft distillers were pushing his business out of the province.

By the time a bill that will make changes to distilling taxes was finalized for third reading on Wednesday, Frape & Sons Boutique Bitters had already courted the Cook County Chamber of Commerce and the mayor of Grand Marais, Minn.

"At this point, it's inevitable that we'll be moving to Grand Marais," Frape said, adding the distillery will employ six full-time staff.

Frape claimed the tax burden his company would face in Ontario would cut 78 per cent into profits compared to a 14 per cent combined rate of federal and state taxes the company would face in Minnesota.

The bill navigating its way through the Legislature will replace a 140 per cent markup through the LCBO with a 61.5 per cent tax on distilleries' direct sales. The difference will amount to distillers paying $2.40 less in taxes per bottle.

Frape said craft distillers have been fighting for treatment similar to craft wine and beer producers.

"We're taxed at a rate based on sale price rather than on volume and we pay the same tax as distillers with a 100-gallon still or a 30-gallon still than the Diageos and Brown-Formans of the world pay with their million-gallon stills," he said.

The bill was struck in response to a constitutional challenge issued by the Toronto Distillery Company, whose owners claimed taxation without representation because the LCBO markup was never passed as a law. While they lost the case, Ontario conceded there should be legislation but craft distillers claim the scale is still tipped in favour of the larger players.

The company that launched the case will close for business in January 2017. The owner of Hearst-based Loon Vodka is looking to the Chinese market to supplement sales in order for him to have a salary.

Frape claims there are only 15 total craft distillers in the province and under these conditions, his company won't be one of them.

"The province is not open for business as it relates to distilling and they're touting it as good social policy, which is insulting. They're touting two dollars a bottle as filet mignon when it's table scraps," he said.

"If they concentrate on volume rather than on selling price, I'd be able to reconsider."