Tax Guide for Distillers and Distributors of Distilled Spirits
Industry Topics

The Basics

Sales and Use Taxes in General

All retail sales of tangible personal property in California are taxable, unless the law specifically exempts or excludes them. The law defines a retail sale as a sale of tangible personal property (not intended for resale) in the regular course of business.

For distillers and distributors, most distilled spirits sales are for resale to other licensees who are authorized to sell distilled spirits. Distillers or distributors that make retail sales as a sale of distilled spirits or other items, (like new or used equipment, gift items, glassware and accessories) in California generally owe sales tax on their sales. Sales of food intended for consumption on their premises are also taxable.

Use tax, a companion to California's sales tax, applies to the use of property in California purchased from a retailer. For example, you may owe tax when you purchase tangible personal property for use in California from an out-of-state or foreign vendor without paying tax. You also owe use tax on any property you purchased for resale (without paying tax) but then removed 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.

Alcoholic Beverage Tax in General

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

Generally, distilled spirits wholesalers pay the alcoholic beverage tax based on the gallons sold to in-state retailers. If the alcoholic beverage tax is not paid by the wholesaler the distilled spirits seller or retailer owes the tax.

The current alcoholic beverage tax rate on distilled spirits, based on "per wine gallon," is:

• Distilled spirits, 100 proof or less: $3.30 per wine gallon
• Distilled spirits over 100 proof: $6.60 per wine gallon

For all alcoholic beverage tax rates, see Tax Rates — Alcoholic Beverage Tax.

Conversion of Liters to Wine Gallons

You are required to file California returns and reports for distilled spirits in wine gallons. A wine gallon is the same as a regular gallon = 231 cubic inches or 128 ounces.

The Federal Alcohol and Tobacco Tax and Trade Bureau (TTB) authorizes the bottling of wine and distilled spirits in standard metric sizes. However, you must file all California returns and reports in wine gallons. To convert liters to wine gallons for reporting purposes, you must multiply the quantity in liters by 0.264172, rounded to the nearest one-hundredth (second decimal) of a gallon.

For more information see Revenue and Taxation Code section 32452.1 and Regulation 2544, Conversion of Liters to Gallons.

Responsibility for Alcoholic Beverage Tax

Distilled spirits are presumed to be sold in California. The excise tax is due when they are sold to in-state retailers or to consumers if sold by licensed craft distillers.

You may rebut the presumption that the alcoholic beverage tax is due if you can show that the distilled spirits:

• Are still in the licensee's possession.
• Have been sold or delivered to another licensed distilled spirits manufacturer, rectifier, importer, or wholesaler.
• Have been exported outside California or sold for export by the licensee and were exported from California within 90 days of the sale.
• Have been lost through unintentional destruction prior to terminating possession.
• Have been lost through an unaccounted for loss prior to terminating possession. The unaccounted for loss shall not exceed the allowed tolerance amount set forth in subdivision (b) of Regulation 2550, Destruction and Unaccounted For Losses of Distilled Spirits.
• Are otherwise exempt from taxation. See Transactions Exempt from the Alcoholic Beverage Tax below.

Transactions Exempt from the Alcoholic Beverage Tax

The law provides certain exemptions from the alcoholic beverage tax.

The following are exempt from the alcoholic beverage tax:

• Distilled spirits sold to instrumentalities of the U.S. armed forces organized under Army, Air Force, Navy, Marine Corps, or Coast Guard that include exchanges and officers', noncommissioned officers', and enlisted person's clubs or messes (Revenue and Taxation Code section [RTC] 32177.5)
• Alcoholic beverages in continuous transit through California in the possession or custody of common carriers (RTC section 32051).
• Certain sales of alcohol or distilled spirits for use in trades, professions, or for industrial purposes, and not for beverage purposes (RTC section 32052).
• Alcohol or other distilled spirits sold in packages of a capacity of larger than one gallon for the following uses (RTC section 32053):
  • By any state or federal governmental agency, any scientific university or college any laboratory for use exclusively in scientific research, or any hospital or sanitarium.
  • The manufacture of any of the following products if the products are unfit for beverage use:
    • Medicinal, pharmaceutical, or antiseptic products (including prescriptions compounded by registered pharmacists)
    • Toilet products
    • Flavoring extracts
    • Syrups
    • Food products
    • Scientific, chemical, or industrial products
• Sales of alcoholic beverages to certain commercial carriers of persons when beverages will be used on their facilities outside California (RTC section 32054).
• Distilled spirits sold for export and actually exported from California within 90 days of the sale (RTC section 32211).
• Brandy sold to a licensee of another state, per Business and Professions code section 23108, (RTC section 32212).
• Distilled spirits sold by manufacturers, rectifiers, importers, or wholesalers to common carriers engaged in interstate or foreign passenger service (RTC section 32213).

You must maintain records to adequately document the above exemptions.

Tax Credits

A distilled spirits taxpayer may claim a tax credit for alcoholic beverage tax paid on distilled spirits when sold to certain persons who use distilled spirits to make food products.

For more information, see RTC section 32214.

Agricultural Topics

If you operate a farm that grows ingredients for distilleries (like hops, barley, grains, potatoes, or fruit), or that processes these products for distilleries, 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, farm equipment and machinery sales are subject to sales and use tax. 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 five percent.

Three requirements 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 (at least 50 percent of the time) in producing and harvesting agricultural products and
3. Defined as farm equipment and machinery (including any tool, machine, equipment, appliance, device, or apparatus used in agricultural operations).

If any of these three requirements are not met, the partial exemption from sales and use tax 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, see publication 46, Leasing Tangible Personal Property.

Mobile transportation equipment generally does not qualify for the partial exemption unless it is used exclusively in 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, see our L-461 Auto Part Retailers' Sales Generally Do Not Qualify for the Farm Equipment and Machinery Partial Exemption.

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

Diesel Fuel Used in Farming or Food Processing

Most sales and purchases of diesel fuel are subject to sales and use tax. However, certain sales and purchases of diesel fuel used in farming or food processing are partially exempt.

To find out when the partial exemption applies to sales or purchases of diesel fuel used in farming or food processing are partially exempt. See our Tax Guide for Agricultural Industry, look under the Farming Exemptions tab, and go to the Diesel Fuel Used in Farming or Food Processing topic.

In addition to the partial sales and use tax exemption, the sales of dyed diesel fuel are exempt from the diesel fuel tax. For more information on the diesel fuel tax exemptions, see our Tax Guide for Motor Vehicle Fuel and Diesel Fuel Tax 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 taxable.

However, the sale and purchases of seeds and plants are exempt from sales and use tax when:

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

For more information, 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, if the land and plants are used to produce food products (like grains, hops, and 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 preserving the manure, or with materials used for bedding, sanitation, or feeding of 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), auxiliary soils, and plant 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 sale representing the fertilizer price is not taxable if the fertilizer is used in a tax-exempt manner.

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

Manufacturing and Research & Development Topics

Manufacturers and certain research and developers may qualify for a partial tax exemption 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 distiller, some of your purchases may qualify for a partial manufacturing exemption. Some examples of machinery and equipment that may qualify include distillation 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, and Electric Power Equipment & Buildings Exemption.

Oak Barrels

New or used oak barrels and oak chips bought for incorporating oak flavor (elements derived from the oak) into brandy may be purchased for resale by manufacturers of alcoholic beverages.

As the manufacturer of distilled spirits, you can give a CDTFA-230, General Resale Certificate, to your vendor when purchasing oak barrels or oak chips and purchase without paying sales tax.

Sales and Distribution Topics

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

Distilled Spirits Labels

Sales and use tax generally does not apply to the sale of labels to persons who affix them to:

• Nonreturnable containers of property to be sold (spirits) or
• Returnable containers when a new label is affixed to the container each time it is refilled.

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

Packaging Material

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

Examples include bottles, cans, wrapping materials, twines, bags, cardboard or plastic carriers, cartons, and pallets.

Distilled Spirits Tastings and Self-Consumption

If you charge a fee for distilled spirits tasting, you are considered the retailer of the distilled spirits. For this reason, sales tax applies to the tasting charges. The alcoholic beverage tax is owed on all distilled spirits provided to customers at tasting events even if there is no charge to the customers attending the event.

If you also sell food during distilled spirits 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 distilled spirits and food sales as a separately stated charge, or you can include the tax with your distilled spirits or food charges. However, you must post a sign notifying your customers that the fee charged for distilled spirits tasting or food includes sales tax reimbursement. For more detailed information on sales tax reimbursement, see Regulation 1700, Reimbursement for Sales Tax.

If you do not charge a fee for distilled spirits tasting or food served to customers, you are considered the consumer of the products. You owe use tax on the taxable items that you purchased for resale and used to produce the distilled spirits that you let customers taste without charge. For example, if you are a distilled spirits manufacturer, you owe use tax on items purchased for resale such as bottles, labels, and certain chemicals incorporated into the distilled spirits. If you purchased distilled spirits for resale, you owe use tax measured by the cost of the distilled spirits that you give away or self-consume. Use tax does not apply to the purchase of grains or hops because they are food products, which are exempt from tax. For more information regarding components of manufactured distilled spirits, the Ingredients tab.

Facility Fees for Events at a Distillery

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

In general, when you contract to provide and serve food or beverages for an event at the distillery and the distillery's primary purpose is to serve the food or beverages at the event, your charge for use of the distillery is taxable, even if separately stated. We consider the distillery to be functioning as a restaurant. For this reason the charge for using the distillery is part of the food or beverage sale.

Example:

A distillery 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 distillery's courtyard has tables and chairs for the wedding reception, and the distillery provides all tableware, linens, and glasses, in addition to the food and beverages. In this case, the distillery is functioning as a restaurant, and the distillery's facility charge for the courtyard use is taxable, even if the charge is separately stated.

However, if you contract to provide and serve food or beverages at the distillery, but also rent a separate area of the distillery to your customer for a use other than serving food or beverages, the charge for the separate area unrelated to the serving of food or beverages is not taxable 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 the couple to spend their wedding night.

Example:

Same scenario as the above example, except in this case the distillery 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 wedding ceremony area. The distillery separately charges for this area's use (and that use is unrelated to serving food or beverages). Because the area's primary purpose is not to serve food or beverages, the separately stated charge is not taxable. 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 distillery for an event where the primary purpose is to serve food or beverages is taxable even if you only provide either the food or the beverages at the event.

Example:

A distillery has a courtyard area designed for wedding receptions and contracts to serve its wine there for a wedding reception. However, the customer contracts directly with a caterer, unrelated to the distillery, to provide and serve the food at the reception. The distillery’s facility charge for the use of its courtyard is taxable because the distillery provides and serves the distilled spirits at the event, even though the food is provided and served by an outside caterer. The facility charges are taxable 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 you provide facilities primarily for serving food or beverages, the charge for those facilities is taxable, even if separately stated.

Example:

A distillery operates a catering service and has a cellar that can be used for private parties. The distillery contracts to provide 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 distilled spirits, the cellar's facility charge is taxable since the primary purpose of the event is to serve food and beverages.

However, in some instances, you may rent or lease the distillery for an event without providing and serving food or beverages. Instead, the customer provides the food and beverages, including the distilled spirits, for the event. For example, the customer hires a caterer unrelated to you to provide and serve meals at the event. Under these circumstances, we do not consider you to be a restaurant because you are not responsible for providing the food or beverages. You are merely leasing the premises, and the separately stated charge for the use of the distillery is not taxable.

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

Samples and Donations

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

Each time licensees (who are authorized to possess alcoholic beverages) transfer samples on which the California alcoholic beverages taxes have not been paid, the transfer should be on an ex-tax basis- (meaning the alcoholic beverage tax is not included in the transfer price because the tax has not yet been paid) and recorded on an invoice marked "Samples."

When a manufacturer's representative or agent picks up distilled spirits at the licensed premises of a distilled spirits rectifier or for sampling purposes, those spirits are subject to the alcoholic beverage tax. The rectifier or wholesaler should report them as taxable sales. (Alcoholic Beverage Tax Regulation 2560, Treated as Sales).

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

Importing Distilled Spirits

As a distilled spirits importer, you must keep purchase invoices and a record of all shipments of distilled spirits received from outside California.

You must document your records on CDTFA-242-A, Distilled Spirits Imported into California. You must report the import of distilled spirits in California at the time of importation and not at the time of withdrawal from bond. The total amount must be reported on the Distilled Spirits Tax Return, on the Inventory Reconciliation 100 Proof and Under, and the Inventory Reconciliation Over 100 Proof screens.

Distilled spirits imported into California that are sold by the importer to a licensed manufacturer, wholesaler, rectifier, or importer are not subject to the alcoholic beverage tax. However, imported distilled spirits sold by a wholesaler or rectifier to a California retailer are subject to the alcoholic beverage tax.

Personal Use

Adults who bring alcoholic beverages into California for personal or household use do not need an alcoholic beverage license. However, 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 must report and pay use tax directly to us. For information regarding California use tax, please visit our California Use Tax webpage.

Exporting Distilled Spirits

Distilled spirits sold for export and actually exported are exempt from the alcoholic beverage tax. Distilled spirits must be exported from California within 90 days off the sale.

To qualify for the alcoholic beverage tax exemption, 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 foreign country, and the federal tax on alcoholic beverages is not imposed or is refunded.
• The beverages are shipped outside California by a carrier who is independent of the buyer and the seller, and the tax exemption claim 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 other people's property.)
• The beverages are shipped to or delivered outside California, and the tax exemption claims supported by documentation signed by the purchaser. Documentation must include the certificate of the appropriate liquor control or tax authority of the state to which the beverages were delivered, showing that the purchaser has reported receipt of the beverage delivery to that authority.

Sales of distilled spirits by licensed retailers to customers outside California are generally considered exempt sales in interstate and foreign commerce. Therefore, they are not subject to sales tax. You must keep documentation, such as a bill of lading, to show that the distilled spirits were 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. Therefore, they are subject to the alcoholic beverage tax.

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 helps you keep track of your sales and purchases. It also assists you when preparing your required tax returns and reports. You must keep your records 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:

• Sales invoices
• Cash register tapes
• Sales journals
• Resale certificates
• Shipping documents
• Purchase invoices
• Bank records
• Purchase orders
• Purchase journals
• Tax returns

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

Invoices

Every sale or delivery of distilled spirits or brandy from one licensee to another must be recorded on a sales invoice, whether or not consideration is involved.

Each invoice covering alcoholic beverages sales or purchases:

• Must not be mixed with invoices covering items other than alcoholic beverages,
• Must be marked or stamped "Sold for export" if sold for export,
• Must be marked or stamped "No state tax Not for beverage use" if sold for use in trades, professions, or industries, and not for beverage use,
• For sales by one licensee to another, must show the number of wine gallons sold, and
• Must show all of the following:
  • The name and address of the seller,
  • The name and address of the purchaser,
  • The date of sale or purchase and invoice number,
  • date of sale or purchase and invoice number,
  • The kind, quantity, size, and capacity of packages of alcoholic beverage sold,
  • The cost to the purchaser with any discount to be given on or from the invoice price, and
  • The place from which the alcoholic beverage delivery was made, unless delivery was made from the licensee's premises or from a public warehouse in the same county.

In addition to the general requirements described above, you must keep the following records:

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

Inventories

If you are a distilled spirits taxpayer, you must provide a statement of your gallonage of finished package distilled spirits on hand at the end of the month or reporting period.

You must report it on the Distilled Spirits Tax Return. In general, at least two of the statements of gallonage should be prepared from semi-annual physical inventories.

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

For more information, see Regulation 2530, Inventories.

Losses and Allowances

If you are a licensed business and experience any of the following described losses, we will refund the state alcoholic beverage tax amount that was included in the beverage sales price.

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

You may obtain a refund 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 paid, all the following conditions must be met:

• The beverages are lost, rendered unmarketable, or condemned by a duly authorized official due fire, flood, casualty, or disaster, or due to breakage, destruction, or damage resulting from vandalism, malicious mischief, or insurrection.
• The beverages were held and intended for sale at the time of the disaster or damage.
• The disaster or damage occurred in California.
• The licensee has not been, and will not be, compensated by insurance or otherwise for the loss of the tax included in the purchase price paid for the beverages.
• The refund amount for a single disaster or loss is at least $250.
• A claim for refund is filed with us within six months after the date 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. For more information see Regulation 2553, Losses Resulting from Disaster, Vandalism, Malicious Mischief, or Insurrection.

Unintentional Destruction of Distilled Spirits

Unintentional destruction means destruction of distilled spirits by fire, earthquake, floods, breakage in transit, accident, or by any other cause when the exact quantity destroyed is known.

Claims for loss of inventory due to unintentional destruction should be submitted via email to unintentionaldestruction@cdtfa.ca.gov and must be submitted to us immediately following the close of business on the last day of the month in which the loss is discovered. The claim must state under oath of the licensee that the distilled spirits were so damaged that they could not be used for any purpose. For verification, the taxpayer must retain satisfactory proof of loss in the form of paid insurance or carrier claims on their premises.

For more information, see Regulation 2550, Destruction and Unaccounted for Losses of Distilled Spirits.

Unaccounted-For Losses of Distilled Spirits

Unaccounted for losses shall include all other losses disclosed by physical inventory due to pilferage, handling, or other causes.

By law, unaccounted for losses of distilled spirits acquired by any distilled spirits taxpayer shall not exceed one-tenth of one percent of the total sales of the distilled spirits. If a distilled spirits taxpayer holds licenses for two or more premises, the amount allowed by this rule shall be computed and applied separately to each premises unless we have granted the taxpayer permission to file a consolidated tax return.

For more information, see Regulation 2550, Destruction and Unaccounted for Losses of Distilled Spirits.

Distilled Spirits Sold for Industrial Uses

The sale of distilled spirits by distilled spirits manufacturers, brandy manufacturers, rectifiers, or industrial alcohol dealers for industrial (non-beverage) uses is exempt from the alcoholic beverage tax, but only when sold in packages with a capacity larger than one gallon (RTC section 32052 and RTC section 32053).

Using distilled spirits to produce any of the following products is considered an industrial use, if the products are unfit for consumption as beverages (Business and Professions Code section 23112):

• Medicinal, pharmaceutical, or antiseptic products (such as hand sanitizer), including prescriptions compounded by registered pharmacists
• Toilet products
• Flavoring extracts
• Syrups
• Food products
• Scientific, chemical, or industrial products

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