Tax Guide for Distillers and Distributors of Distilled Spirits
Ingredients

Distilled Spirits Ingredients

This section provides guidance on the application of sales and use tax to ingredients and products used in the distillation of spirits. Sales of ingredients and products to distilleries may or may not be subject to tax, depending on whether they fall into one of the following categories:

  • Food Products – Sales of food products intended for human consumption are not subject to tax. Therefore, ingredients used in the production of distilled spirits that are considered food products, such as grains, potatoes, and yeast, are not subject to tax.
  • Raw Materials – Tax does not apply to sales made to distilleries of non-food products or ingredients that are purchased for incorporating into the finished product (distilled spirits) for sale.
  • Manufacturing Aids – Tax applies to the sales of non-food products or ingredients that are purchased for use in manufacturing or producing the distilled spirits and not for the purpose of physically incorporating the item into the finished product.

Food Products Are Not Subject to Tax

Sales of food products are not subject to tax when used to produce distilled spirits.

Examples of food products that may be used in the production of distilled spirits:

  • Grains of any kind
  • Vegetables (sugar cane, sugar beet, potato)
  • Glucose
  • Maple syrup
  • Caramel syrup
  • Sugar cane (cane juice, molasses)
  • Cherry stones
  • Juniper berries
  • Fruit (grapes, apples, pears, plums, dates, strawberries, raspberries)
  • Fruit juice
  • Fruit concentrate
  • Roots (agave, ti-root)
  • Herbs
  • Spices 
  • Nuts
  • Yeast and yeast products
  • Enzymes (for example amylases)

Raw Materials or Ingredients Incorporated into Distilled Spirits May Be Purchased for Resale

Distilleries may purchase raw materials for resale (without the payment of tax) that become ingredients or component parts of the finished product that will be resold. For example, artificial flavors, such as vanillin and maltol, and color additives.

If you make distilled spirits for personal consumption and do not intend to resell the spirits you make, you may not purchase the above ingredients without tax. These ingredients may only be purchased without tax when they are intended to be incorporated into spirits that will later be resold.

Purchases of Manufacturing or Processing Aids Are Subject to Tax

Tax applies to sales of products that are consumed in manufacturing distilled spirits and are not physically incorporated into the finished product. If property is purchased primarily as an aid in the manufacturing process, it is subject to tax, even though some portion may remain in the finished product.

Examples of manufacturing aids used to produce distilled spirits include:

  • Products that stabilize color before fermentation.
  • Chemicals that assist yeast during fermentation.
  • Products that precipitate a chemical reaction during or after fermentation.

Filing a Claim for Refund

If you believe you have paid tax in error on your purchases of ingredients or products used in producing distilled spirits, you may be entitled to a refund of the overpaid tax.

A refund may generally be claimed at any time within the statute of limitations (generally three years). If you are seeking a refund for overpaid taxes on qualifying purchases of manufacturing or research and development equipment, the procedures are different depending on whether the original purchase was subject to sales tax or whether the original purchase was subject to use tax. California Use Tax Information webpage provides more detailed information about use tax.

If the tax you paid was sales tax, you must request a refund from the retailer. The retailer may then file a claim for refund with the California Department of Tax and Fee Administration (CDTFA). As the purchaser, you will need to provide the retailer with a completed resale certificate (CDTFA-230, General Resale Certificate, or similar form) and documented evidence that the original purchase should have qualified as raw material intended to be incorporated into the finished product. However, if the item on which you paid sales tax is a food product, a resale certificate is not necessary.

If the tax you paid was use tax (typically use tax applies when you purchase from an out-of-state vendor), you may file a claim for refund directly with the CDTFA. Simply complete form CDTFA-101, Claim for Refund or Credit, and mail it to the address provided. Indicate the reason for the refund is that the property purchased qualifies as a food product or raw material intended to be incorporated into the finished product.

If you paid sales or use tax on a manufacturing aid or other taxable property and subsequently resold it before making any use of it, you may take a deduction of the purchase price of the property on your sales and use tax return. You must take the deduction under the heading "Tax-paid purchases resold" on your return in the same period in which the sale of the property is included.

For more information on how to file a claim for refund, see publication 117, Filing a Claim for Refund.