Industry Topics for Beer Brewers and Distributors

The Basics

Sales and Use Taxes in General

All retail sales of tangible personal property in California are subject to sales and use tax, unless the law provides a specific exemption or exclusion. The law defines a retail sale as a sale for a purpose other than resale in the regular course of business in the form of tangible personal property.

For beer manufacturers and distributors, most sales of beer are for resale to other licensees who are authorized to sell beer. Manufacturers or distributors that do make retail sales in California of beer or other items, such as new or used equipment, gift items, glassware, and accessories, generally owe sales tax on their sales. Sales of food intended for consumption on their premises are also taxable.

Use tax is a companion to California's sales tax, which applies to the use of property in California purchased from a retailer. For example, you may owe use tax when you purchase tangible personal property from an out-of-state vendor or foreign vendor for use in California without payment of tax. You may also owe use tax on property you purchased for resale without payment of tax but then remove from your resale inventory to use in California. To pay the use tax, report the purchase price of the taxable items under "Purchases Subject to Use Tax" on your sales and use tax return. Those purchases become part of the total amount that is subject to tax.

The statewide sales and use tax rate is 7.25 percent. In many areas of California, local jurisdictions have added district taxes that increase the applicable tax rate. To find the tax rate for an address or location, please visit our Find a Sales and Use Tax Rate webpage and enter the address as prompted.

Alcoholic Beverage Tax in General

The alcoholic beverage tax is a per-gallon excise tax collected on the sale, distribution, or importation of alcoholic beverages in California. The alcoholic beverage tax is in lieu of all county, municipal, and district taxes on the sale of beer, wine, and distilled spirits.

Generally, beer manufacturers and importers are required to pay the alcoholic beverage tax. If the tax has not been paid by beer manufacturers or importers, then the sellers of beer must pay it.

The current alcoholic beverage tax rate per gallon of beer is $0.20. Check our webpage Tax Rates—Alcoholic Beverage Tax for any changes in the tax rate.

Agricultural Topics

If you operate a farm that grows hops or barley or that processes hops and malt, make sure you know about the tax-saving opportunities that may be available to you. This section explains how sales and use tax and exemptions generally apply to farm equipment and machinery, diesel fuel used in farming or food processing, seeds and plants, fertilizer, soil amendments, pesticides, insecticides, and manufacturing equipment.

Partial Exemption for Farm Equipment and Machinery

In general, the sale of farm equipment and machinery is taxable; however, certain sales and purchases of farm equipment and machinery (including repair and replacement parts) are partially exempt from sales and use tax. As a farmer, you may qualify for this partial exemption.

The partial exemption applies only to the state’s General Fund and Local Revenue Fund 2011 portions of the sales tax , currently 5 percent.

Three requirements defined in Regulation 1533.1 must be met for the partial exemption from sales and use tax to apply. The item must be:

1. Purchased by a qualified person,
2. Used exclusively or primarily (depending on the type of item) in producing and harvesting agricultural products. Primarily means at least 50 percent of the time, and
3. Defined as farm equipment and machinery, which includes any tool, machine, equipment, appliance, device, or apparatus used in the conduct of agricultural operations.

If any one of these three requirements is not met, the partial exemption will not apply.

Examples of farm equipment and machinery that may qualify include:

• Planting and seeding equipment
• Crop-spraying equipment
• Harvesting equipment
• Tractors
• Balers
• Trimming tools
• Solar power systems, under certain circumstances
• Irrigation equipment

If you lease rather than purchase farm equipment, you may still qualify for the partial sales and use tax exemption. For more information about leases, please see publication 46, Leasing Tangible Personal Property.

Mobile transportation equipment generally does not qualify for the partial exemption unless it is used exclusively in the conduct of agricultural operations and qualifies as an implement of husbandry under the California Vehicle Code. For a list of items that generally do not qualify for the farm equipment and machinery partial exemption, please see our special notice, Auto Part Retailers' Sales Generally Do Not Qualify for the Farm Equipment and Machinery Partial Exemption.

For more information about this partial exemption and other exemptions available for farming, please see our Tax Guide for Agricultural Industry and look under the Farming Exemptions tab.

Diesel Fuel in Farming or Food Processing

Most sales and/or purchases of diesel fuel are subject to sales and use tax. However, there is a partial exemption from sales and use tax for certain sales and purchases of diesel fuel used in farming activities or food processing.

For information on when the partial exemption applies to the sale or purchase of diesel fuel used in farming activities or food processing, please see our Tax Guide for Agricultural Industry, look under the Farming Exemptions tab, and go to the Diesel Fuel Tax Exemption for Diesel Fuel used on a Farm for Farming Purposes topic.

In addition to the partial sales and use tax exemption, there is an exemption for sales of dyed diesel fuel. For more information on the diesel fuel tax exemptions, please see our Tax Guide for Motor Fuel Taxes and select the Diesel Fuel Tax option under the Industry Topics tab.

Seeds and Plants (rootlings, rootings, and root stock)

Retail sales of seeds and landscaping plants are generally subject to sales and use tax.

However, there is an exemption from the sales and use tax for sales and purchases of seeds and plants when:

• The seeds, or the products grown from them, will be used as food for human consumption, such as hops.
• The plants will produce food for human consumption, such as fruits, grains, berries, or nuts.

In addition to the partial sales and use tax exemption, there is the diesel fuel tax exemptions, please see our Tax Guide for Motor Fuel Taxes and select the Diesel Fuel Tax option under the Industry Topics tab.

For more information, please see Regulation 1588, Seeds, Plants and Fertilizer.

Fertilizer, Soil Amendments, Pesticides, and Insecticides

Sales and use tax does not apply to the sale of fertilizer to be applied to land or used in foliar application to plants, provided the land and plants are used to produce food products (grains, hops, berries).

The term fertilizer includes all the following:

• Commercial fertilizers (as defined in section 14522 of the California Food and Agricultural Code)
• Agricultural minerals (as defined in section 14512 of the California Food and Agricultural Code)
• Cover crops that will be planted on the land and plowed underneath to fertilize that land
• Carbon dioxide
• Manure, which is:
  1. Waste from any domestic animal or fowl that is not artificially mixed with any material; or
  2. Domestic animal or fowl waste mixed only with materials used for preservation of the manure, or with materials used for bedding, sanitary, or feeding purposes for the animal or fowl.

Other retail sales of fertilizer and packaged soil amendments (as defined in section 14552 of the California Food and Agricultural Code, other than manures sold without guarantees for plant nutrients) and auxiliary soils and plants substances (as defined in section 14513 of the California Food and Agricultural Code other than carbon dioxide) are taxable.

Sales of pesticides and insecticides are taxable; however, when those materials are mixed with fertilizer, the portion of the sales price representing the price of the fertilizer is not taxable if the fertilizer is used in a tax-exempt manner.

For more information, please see Regulation 1588, Seeds, Plants and Fertilizer.

Manufacturing and Research & Development Topics

Manufacturers and certain research and developers may qualify for a partial exemption from sales and use tax on certain manufacturing and research and development equipment purchases and leases.

Manufacturing and Research & Development Partial Exemption

Manufacturers, certain researchers and developers, and certain electric power generators and distributors may qualify for a partial exemption from sales and use tax on the purchase or lease of qualified machinery and equipment primarily used in manufacturing, research and development, and electric power generation or production, storage, or distribution.

In general, to be eligible, you must meet all these conditions:

• You must be engaged in certain types of business, also known as a “qualified person,”
• You must purchase “qualified tangible personal property,” and
• You must use the property in a qualified manner.

As a beer producer, some of your purchases may qualify for a manufacturing partial exemption. Some examples of machinery and equipment that may qualify for the exemption include brewing equipment, heating systems, bottling equipment, and fermentation tanks.

For more specific information on the partial manufacturing exemption, please visit our Tax Guide for Manufacturing and Research & Development Equipment Exemption.

Manufacturing Topics

If you are a beer manufacturer, this section provides information that will assist you in preparing returns.

Beer Manufacturer Tax Return

California breweries are required to complete and file a beer manufacturer tax return online each month, including months with no activity.

You may file your Beer Manufacturer Tax Return electronically using our Online Services. The return is due on or before the 15^th day of the month following the reporting period. A return filed or payment made after the due date, regardless of whether any tax was due, will incur a penalty of $50 or 10 percent of the tax due, whichever is greater, plus any accrued interest.

Brewer's Conversion Table

In determining the alcoholic beverage tax due on the sale of beer in bottles or cans, the quantity sold shall be computed in accordance with the following table listed below.

Each barrel of beer contains 31 gallons. Therefore, to determine the number of gallons to report on your Beer Manufacturer Tax Return, you will need to multiply the number of barrels sold by 31.

Because the determination of tax liability is based upon a count of cases of bottles or cans, only bottles or cans of uniform size and content may be packaged in the same case or shipping container.

If beer is to be packaged in cases of sizes other than those shown above, the beer manufacturer shall notify us in advance and request to be advised of the proper fractional barrel equivalent for the proposed container.

Sales and Distribution Topics

If you sell, ship, distribute, import, or export beer, you need to know your sales and use and alcoholic beverage tax obligations. This section contains information that may be helpful to you.

Beer Labels

Sales and use tax generally does not apply to the sale of labels when sold to persons who affix them to nonreturnable containers of property to be sold (beer) or to returnable containers when a new label is affixed to the container each time it is refilled.

Examples are sales of labels to be affixed to fruit boxes, cans, bottles, and packing cases to growers, packers, bottlers, and others who place the contents in the containers.

Beer Packaging

Sales and use tax does not apply to the sale of the packaging materials when sold to persons who place the contents (beer) in the containers and sell the contents together with the containers.

Examples of packaging materials are bottles, cans, barrels, wrapping materials twines, bags, cardboard or plastic carriers, cartons, and pallets.

Sales and use tax applies to all other sales of containers, including beer kegs, purchased for use by the brewery or as returnable containers not for the purpose of resale.

Shipping Beer

Breweries are currently prohibited from shipping beer directly to California customers.

Only licensed wholesalers may distribute beer, and only licensed retailers can sell it to consumers. Please visit ABC's website for additional requirements.

Beer Tastings and Self-Consumption

Tax may apply to beer that is provided for tasting depending on whether a charge is made and where it is consumed.

If you charge a fee for beer tasting, you are considered the retailer of beer, and sales tax applies to the beer tasting charges.

If you also sell food during beer tastings, such as bread, crackers, cheeses, and other snacks, sales tax also applies to these sales. You may collect sales tax reimbursement from your customers on your beer and food sales as a separately stated charge, or you can include the tax in your beer or food charges; however, you must post a sign notifying your customers that the fee charged for beer tasting or food includes sales tax reimbursement. For more detailed information on sales tax reimbursement, please see Regulation 1700, Reimbursement for Sales Tax.

If you do not charge a fee for beer tasting or food served to your customers, you are considered the consumer of the products used. You owe use tax on the cost of the taxable items that you purchased for resale and used to produce the beer that you let customers taste without charge. For example, if you are a brewer, you would owe use tax on items purchased for resale such as bottles, labels, and certain chemicals incorporated into the beer. If you purchased beer for resale, you owe use tax measured by the cost of the beer that you give away or self-consume. Use tax does not apply to the purchase price of the grains, hops, or any other food items served, because food products are generally exempt from tax. For more information regarding components of beer produced for human consumption, please see the Ingredients tab.

Alcoholic Beverage Tax

Beer manufactured by a brewery for consumption in a brewery tavern, which is placed in a storage tank designed for this purpose, is subject to alcoholic beverage tax at the time it is placed in the storage tank. A “tavern” means a federally approved portion of the brewery premises where beer is sold to consumers.

Beer consumed by brewery employees, visitors, and others is not subject to the alcoholic beverage tax if consumed without charge, within the brewery's bonded premises, and not in a brewery tavern.

Facility Fees for Events at a Brewery

If you contract to provide and serve food or beverages at your brewery for a customer's event, such as a wedding, birthday party, or retirement party, in general, your charge for use of the brewery (facility) is subject to tax.

In general, when you contract to provide and serve food or beverages for an event at the brewery and the primary purpose of the brewery is to serve the food or beverages at the event, your charge for use of the brewery is subject to tax, even if separately stated. You are considered to be functioning as a restaurant, and the charge for the use of the brewery is part of the sale of food or beverages.

Example:

A brewery has a courtyard area designed for wedding receptions and contracts to furnish and serve food and beverages for a customer's wedding reception (event) under a lump sum charge. The brewery’s courtyard has tables and chairs for the wedding reception and the brewery provides all tableware, linens, and glasses, among others, in addition to the food and beverages. In this case, the brewery is functioning as a restaurant and the brewery's facility charge for use of the courtyard is subject to tax, even if the charge is separately stated.

However, if you contract to provide and serve food or beverages at the brewery, but also rent a separate area of the brewery to your customer for a use other than serving food or beverages, the charge for the use of the separate area unrelated to the serving of food or beverages is not subject to tax if the charge is separately stated on the invoice. A nontaxable facility charge could include a charge for a location for the couple to prepare for the wedding or a charge for a room for the couple to spend their wedding night.

Example:

Same scenario as the above example (for example, brewery contracts to provide and serve food or beverages for a customer's wedding reception), except in this case the brewery also rents the wedding party a separate area to hold the wedding ceremony. This area is separate from the courtyard and no food or beverages will be served in the area where the wedding ceremony occurs. The brewery separately states the charge for the use of this area that is unrelated to the serving of the food or beverages. Because the primary purpose of the area for the wedding ceremony is not to serve food or beverages, the separately stated charge is not subject to tax. Under these circumstances, only the charge for the facilities where food or beverages are served is subject to tax.

Your charge for the use of the brewery for an event where the primary purpose of the brewery at the event is to serve food or beverages is subject to tax even if you only provide either the food or the beverages at the event.

Example:

A brewery has a courtyard area designed for wedding receptions and contracts to serve its beer at the wedding reception. However, the customer contracts directly with a caterer, unrelated to the brewery, to provide and serve the food at the reception. The brewery's facility charge for the use of its courtyard area is subject to tax because the brewery is providing and serving the beer at the event, even though the food is provided and served by an outside caterer. The facility charges are subject to tax even if the charges are separately stated.

It makes no difference that the facilities are not primarily used for serving food or beverages in the normal course of business, such as a barn, cellar, or garden. When you contract to furnish and serve food or beverages for an event and provide facilities whose primary purpose at the event is to serve food or beverages, the charge for those facilities is subject to tax, even if separately stated.

Example:

A brewery operates a catering service and has a cellar that can be used for private parties. The brewery contracts to furnish and serve food or beverages using its catering service for a retirement party in the cellar. In such cases, even though the cellar is generally used for making and storing beer, since the primary purpose of the event is to serve food and beverages, the facility charge for the cellar is subject to tax.

However, in some instances, you may rent or lease the brewery for an event without furnishing and serving food or beverages. Instead, the customer provides the food and beverages, including the beer, for the event. For example, the customer hires a caterer unrelated to you to furnish and serve meals at the event. Under these circumstances, you are not considered to be acting as a restaurant because you are not responsible for furnishing and serving the food or beverages at the event. You are merely leasing the premises and the separately stated charge for the use of the brewery is not subject to tax.

For more information, please see publication 22, Dining and Beverage Industry, under the section Facility fees charged by retailers other than restaurants or hotels.

Samples and Donations of Beer

Samples and donations of beer shall be reported as sales and are subject to California's alcoholic beverage tax.

Each transfer of samples, between licensees authorized to possess alcoholic beverages on which the California alcoholic beverages taxes have not been paid, should be on an ex-tax basis, and recorded on an invoice marked “Samples.”

For sales and use tax purposes, if you do not charge a fee for your samples, you are considered the consumer of the products used. You owe use tax on the cost of the taxable items that you purchased for resale and used to produce the beer that you let customers taste without charge. For example, if you are a brewer, you owe use tax on items purchased for resale, such as bottles, labels, and certain chemicals incorporated into the beer. If you purchased beer for resale, you owe use tax measured by the cost of the beer that you give away or self-consume. Use tax does not apply to the purchase price of the grains, hops, or any other food items served, because food products are generally exempt from tax. For more information regarding components of beer produced for human consumption, please see the Ingredients tab.

Importing Beer

Commercial Use

All beer imported into California by a beer manufacturer or importer is presumed to be sold, and the alcoholic beverage tax is due when it is received by the licensee. You can rebut this presumption if you can show that the beer:

• Is still in the possession of the beer manufacturer in internal revenue bond within this state.
• Has been exported from California by you (the licensee) or has been sold by you for export and was actually exported from California.
• Is otherwise exempt.

As a beer importer, you must keep purchase invoices and a record of all shipments of beer received from a point outside California on CDTFA-269-BM, Beer Imported into California. A beer manufacturer holding both a beer manufacturer's license and a beer and wine importer's license must also include the total imports of beer on their Beer Manufacturer Tax Return.

Personal Use

Adults who bring alcoholic beverages into California for personal or household use do not need an alcoholic beverage license; however, some restrictions do apply. For specific information on importing alcoholic beverages for personal use and the allowable amounts, please visit ABC's website and review their Importing Alcoholic Beverages for Personal or Household Use webpage.

If you purchase alcoholic beverages from outside California for personal use, you are required to report and pay use tax directly to us. For information regarding California use tax, please visit our California Use Tax Information webpage.

Exporting Beer

Beer sold for export and actually exported outside California is exempt from the sales and use tax and alcoholic beverage tax.

To qualify as exempt from the alcoholic beverage tax, one or more of the following conditions must be met:

• The beverages are delivered to an armed force of the United States, at a depot of the armed force in California, for transport out of California, and the taxpayer's record of the sale is supported by a copy of the official purchase order and the documented evidence of export.
• The beverages are shipped to a point in a foreign country, and the federal tax on alcoholic beverages is not imposed or is refunded.
• The beverages are shipped to a point outside California by a carrier who is independent of the buyer and the seller, and the claim for tax exemption is supported by a copy of the shipping documents receipted by the carrier. "Carrier" means a person or firm regularly engaged in the business of transporting for compensation property owned by other persons.
• The beverages are shipped to or delivered to a point outside California by any means, and the claim for tax exemption is supported by documentation signed by the purchaser. Documentation must include the certificate of the appropriate liquor control or tax authority of the state in which the beverages have been delivered, showing that receipt of the delivery of the beverages has been reported to such authority by the purchaser.

Sales of beer by licensed retailers to customers outside of California are generally considered exempt sales in interstate and foreign commerce and are not subject to sales tax. You must keep documentation, such as a bill of lading, to show that the beer was shipped out of California directly to your customer.

Sales Which Are Not Exports

Alcoholic beverages on which federal excise taxes have been paid, and which are sold to persons operating commercial fishing boats or private carrier freight vessels, for use as ships' stores outside California, upon the high seas, are not exports and are subject to the alcoholic beverage tax.

Beer Transactions Exempt from the Alcoholic Beverage Tax

• Beer consumed by employees of a manufacturer upon the premises of the manufacturer.
• Beer sold or delivered in internal revenue bond to another beer manufacturer in California.
• Beer in continuous transit through California in the possession or custody of common carriers.
• Sales of beer to certain commercial carriers of persons when beverages will be used on their facilities outside California.
• Beer sold for export and actually exported.

Records

You are required by law to keep business records to properly report and pay the applicable taxes. This section will explain what type of records you need to keep, as well as how long you must keep them for sales, use, and alcoholic beverage tax purposes.

Accurate record keeping will help you keep track of your sales and purchases and assist you when preparing your required tax returns and reports. Records must be kept for at least four years, unless otherwise directed by us. If you do not maintain records, it may be considered evidence of negligence or intent to evade the tax and may result in penalties.

Examples of records you must keep include:

Every beer manufacturer, importer, and wholesaler must keep records of all beer produced, received by bottling, canning, or cooperage departments, packaged, purchased, or sold.

Invoices

You must maintain records for all sales and purchases of beer.

If you are a beer manufacturer, wholesaler, or importer, your records must show:

For more information on books and records, please see publication 116, Sales and Use Tax Records.

Inventories

If you are a licensed beer manufacturer, you need to take a monthly physical inventory of all bulk and bottled beer in the brewery bottling house.

You should keep all records used in preparing inventories for certification at your premises to be readily accessible for examination by our team members.

Losses and Allowances

If you are a licensed business and incur any of the following described losses, we will refund you an amount equal to the state alcoholic beverage tax included in the sales price of the beverages.

Losses Resulting from Disaster, Vandalism, Malicious Mischief, or Insurrection

A refund may be obtained from us for the alcoholic beverage tax paid after losses resulting from disaster, vandalism, malicious mischief, or insurrection.

To obtain a refund from us for the alcoholic beverage tax, all the following conditions must be met:

• The beverages are lost, rendered unmarketable, or condemned by a duly authorized official by reason of fire, flood, casualty, or other disaster, or by reason of breakage, destruction, or other damage resulting from vandalism, malicious mischief, or insurrection.
• The beverages were held and intended for sale at the time of the disaster or other damage.
• The disaster or damage occurred in California.
• The licensee has not, and will not, be compensated by insurance or otherwise, for the loss in the amount of the tax included in the purchase price paid for the beverages.
• The amount to be refunded with respect to a single disaster or other loss is $250 or more.
• A claim for refund is filed with us within six months after the date on which the beverages were lost, rendered unmarketable, or condemned by a duly authorized official.

We will not pay interest on the amount of alcoholic beverage taxes refunded. Losses resulting from theft do not qualify for a refund of the alcoholic beverage tax (see Regulation 2553, Losses Resulting from Disaster, Vandalism, Malicious Mischief, or Insurrection).

Losses resulting from theft do not qualify for a refund of any sales tax because the products were not sold at retail, and therefore, no sales tax was imposed.

Spoiled Beer

Tax does not apply to spoiled beer that has not yet been sold in California, or a credit is allowed on tax-paid beer that was sold in California, and subsequently returned as spoiled, when the spoiled beer is destroyed under our supervision. You must receive written approval from us prior to destroying the beer to claim tax is not owed or a credit.

Unsupervised Destruction—Beer Importers

Beer importers can claim a credit for unsupervised destruction of beer when the quantity being destroyed as spoilage is 2,500 gallons or fewer. However, you must receive written approval from us prior to destroying the beer to claim the exemption or credit (Regulation 2552).

Supervised Destruction

If you do not qualify for unsupervised destruction as noted above, you may still be eligible to claim tax is not owed or a credit on tax-paid beer that is destroyed with supervision (Revenue and Taxation Code section 32176). We will contact you regarding the appropriate type of supervision required, including witnessing the destruction virtually through the use of video conferencing, to claim your exemption or credit after you complete and submit CDTFA-775.

Submitting a Beer Destruction Approval Request

To submit a destruction request, a beer manufacturer or importer must submit CDTFA-775, Application for Approval and Declaration of Destruction for Spoiled Beer or Wine. The steps below outline the process for a destruction request:

1. Complete CDTFA-775 Sections I and II and email it to CDTFA775@cdtfa.ca.gov. On the subject line of the email, include the following: Destruction Approval Request—CDTFA Account (input account number).
2. We will review your request and determine whether your beer qualifies for an unsupervised destruction or if supervision by a CDTFA representative is required. We will contact you if additional information is needed prior to approval.
3. If your request is:
• Approved—We will complete Sections III and IV (if applicable). The approval process generally takes up to three business days; however, if an appointment with a CDTFA representative is needed the process can take up to 12 business days. Once approved, the form will be available on your online services profile at the account level under the unread messages.
• Not approved—We will contact you and the CDTFA-775 will not be returned to you.
4. Please complete Section V after all beverages listed in Section I have been destroyed. This form must be signed by the authorized person in the business organization who witnessed the disposal or destruction of the spoiled alcoholic beverages.
5. When filing your return online, you are required to upload the completed CDTFA-775 for each filing period you are claiming tax is not owed or a credit. You may be required to upload additional supporting documentation (for example, destruction facility invoices, Notice of Intent submitted to the Alcohol and Tobacco Tax and Trade Bureau [TTB], or bills of lading, among others), and you will be notified if this is the case. You should retain the original documents for your records.

Please note: All claims that tax is not owed or credits claimed are subject to verification and may be disallowed for improper destruction and/or insufficient documentation.

For more information, please visit the Industry Topics tab of our Tax Guide for Alcoholic Beverage.