Tax Guide for Liquor Store Operators and Owners
Industry Topics

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The Basics

Sales and Use Taxes in General

In California, all sales are taxable unless the law provides a specific exemption. In most cases, taxable sales are of tangible personal property (legally defined as an item that can be seen, weighed, measured, felt, or touched).

For liquor stores, most taxable sales consist of beverages. However, you may also need to pay sales tax on your sales of other items, like taxable food, magazines, and newspapers. You may collect sales tax reimbursement from your customers on these taxable sales.

If you consume or give away taxable items (for example, soda or alcoholic beverages) that you purchased without paying sales tax, you owe an equivalent use tax (which is the same rate as sales tax) based on the cost of those items to you. For more information on use tax, see publication 110, California Use Tax Basics

Seller's Permit

Most people who sell taxable items in California, even temporarily, must register with us for a seller's permit. Registering for a seller's permit is free, though in some cases you may need to pay a security deposit. If you have liquor stores in multiple locations, you must register each location with us. You can register with us for a seller's permit or consolidated seller's permit using our Online Services.

Let us know about any changes to your business, or to your mailing or email address, so that we can inform you of important changes in law, tax rates, or procedures. You can easily update your account information using our Online Services, by contacting our Customer Service Center, or by visiting any one of our field offices throughout the state. Contact information is available in the Resources webpage of this guide.

Cigarettes and Tobacco Products

Cigarette and Tobacco Products Retailer's License

Cigarette and tobacco products retailers must have a California Cigarette and Tobacco Products Retailer's License before purchasing or selling cigarettes or tobacco products at retail. For retail licensing purposes only, tobacco products include nicotine products that are intended for human consumption, electronic smoking or vaping devices, or any component, part, or accessory. You must obtain this license in addition to your seller's permit.

A California Cigarette and Tobacco Products Retailer's License is valid for 12 months, is not assignable or transferable, and must be renewed annually. You must pay a license fee for each retail location in California when you first register and every year at the time of renewal. This fee may not be prorated. See our Tax Rates—Special Taxes and Fees webpage for cigarette and tobacco product retailer's license fee amounts.

Responsibilities

As a cigarette and tobacco products retailer, you must:

Note

  1. Does not apply to tobacco products that are not subject to the tobacco products tax. For example, vape liquids without any nicotine are not subject to the tobacco products tax. However, they are subject to the retail licensing requirement.

Transferring Products Between Stores

If you own more than one store and hold the necessary cigarette and tobacco product licenses for each location, you may be allowed to transfer California-stamped cigarettes and tax-paid tobacco products between stores in specific instances. When transferring cigarettes and tobacco products, you must keep legible transfer records and copies of the original purchase invoice at each location involved in the transfer.

You must prepare the transfer records at the time of transfer, and you must include all the following:

  • The date of the transfer
  • The transferring and receiving retail location's address and tobacco license number
  • The purchase invoice date
  • The purchase invoice number
  • The supplier's name on the invoice
  • The brand, type of packaging, flavor, and style
  • The quantity of items transferred

You must provide these records when requested by our team members or law enforcement. For more information on record requirements, see Regulation 4801, Records.

These requirements do not apply to tobacco products that are not subject to the tobacco products tax. For example, vape liquids without nicotine are not subject to these requirements. However, they are subject to the retail licensing requirement.

For more information about licensing requirements for sellers of cigarettes and tobacco products, see publication 78, Sales of Cigarettes and Tobacco Products in California. Visit our Tax Education webpage to attend a class for tobacco retailers or view video guides and other resources regarding the sales of cigarette and tobacco products.

Cigarette Buy-Downs

If a cigarette manufacturer or distributor offers a "buy-down" promotion (where you agree to sell certain cigarettes at a reduced price and receive compensation from the manufacturer or distributor), sales tax applies to the total received from the customer plus any amount received from the manufacturer or distributor.

For more information, see publication 113, Coupons, Discounts, and Rebates, or Regulation 1671.1, Discounts, Coupons, Rebates, and other Incentives.

California Electronic Cigarette Excise Tax

In-state and out-of-state retailers of electronic cigarettes (e-cigarettes) are required to collect the California Electronic Cigarette Excise Tax (CECET) from the purchaser (California consumer) at the time of sale at the rate of 12.5 percent (12.50%) of the retail selling price of e-cigarettes containing or sold with nicotine. The collection of the CECET is in addition to the sales and use tax.

A retailer of e-cigarettes containing or sold with nicotine must:

  • Obtain and maintain a CECET permit (account),
  • Include the CECET amount in any price marketing on any sign or display,
  • Collect the CECET from the purchaser at the rate of 12.5 percent (12.50%) of the retail selling price of e-cigarettes containing or sold with nicotine at the time of sale,
  • Provide the purchaser with a receipt or other document that separately states the CECET and the amount they paid on each electronic cigarette retail sale,
  • File a CECET return electronically, and
  • Pay the tax to us.

For more information, see Tax Guide for Cigarettes and Tobacco Products.

Flavored Tobacco Ban

California Health and Safety Code section 104559.5 prohibits a tobacco retailer, or any of the tobacco retailer's agents or employees, from selling, offering for sale, or possessing with the intent to sell or offer for sale, flavored cigarettes, flavored tobacco products, or tobacco product flavor enhancers.

The California Office of the Attorney General has published the Unflavored Tobacco List (UTL). The UTL, which will be updated regularly, identifies specific tobacco product brand styles that do not have a characterizing flavor (a taste or odor other than tobacco) and can be sold in California. Any product not on the UTL, is considered a flavored product.

We or a law enforcement agency may seize flavored cigarettes, flavored tobacco products, or tobacco product flavor enhancers that are prohibited or are not listed on the UTL. In addition to a seizure, we will impose civil penalties, suspend, and revoke the cigarette and tobacco products license of repeat offenders.

We may inspect any place where evidence of a violation of the FTPB or the UTL may be found.

For more information, see Tax Guide for Cigarettes and Tobacco Products.

Sales

Taxable Sales

The list below summarizes taxable sales of items typically sold at liquor stores. It is not comprehensive. If you have questions about a product not included here, you may contact our Customer Service Center at 1-800-400-7115 (TTY:711). Customer service representatives are available Monday through Friday from 7:30 a.m. to 5:00 p.m. (Pacific time), except state holidays.

  • Alcoholic beverages
  • Books, newspapers, and magazines
  • Carbonated water and soda
  • Ice
  • Kombucha tea (if alcohol content is 0.5% or greater by volume)
  • Most hot prepared food (see Hot Prepared Foods in this guide)
  • Non-prescription medicines
  • Tobacco products
  • Other non-food or beverage items such as automotive supplies, greeting cards, and so on.

Nontaxable Sales

The list below summarizes nontaxable sales of items typically sold at liquor stores. It is not comprehensive. If you have questions about a product that is not included here, you may contact our Customer Service Center at 1-800-400-7115 (TTY:711). Customer service representatives are available Monday through Friday from 7:30 a.m. to 5:00 p.m. (Pacific time), except state holidays.

  • Candy
  • Chips and crackers
  • Cold meats
  • Cold sandwiches sold to go
  • Fruits and vegetables
  • Ice cream
  • Kombucha tea (if less than 0.5% alcohol by volume and naturally effervescent)
  • Milk
  • Noncarbonated, nonalcoholic beverages (such as water and juice)

Carbonated products which are considered 100 percent natural fruit juices, such as Martinelli's Sparkling Cider, qualify as exempt “food products.” If the carbonated product includes a preservative, such as sodium benzoate, or any other additive, it is not considered a natural fruit juice and tax will apply to its sale.

Sales of products such as noncarbonated sports drinks (for example, Gatorade, Powerade, All-Sport, Vitamin Water) are generally not taxable unless they are packaged or labeled as a food supplement, food adjunct, dietary supplement, or dietary adjunct.

Some foods, such as hot prepared foods, are taxable. For more information, see Hot Prepared Foods below.

Prepaid Mobile Telephony Services (MTS)

If you sell prepaid wireless products and services to California consumers, you must register with us as a prepaid mobile telephony services (MTS) seller. The prepaid MTS account is a separate account from your seller's permit.

Sellers of prepaid MTS, such as prepaid minutes and airtime, have certain surcharge and local charge collection requirements.

Sellers of prepaid MTS must collect, report, and pay the Emergency Telephone Users Surcharge as a flat fee on each prepaid MTS purchase made by a prepaid MTS consumer. The Emergency Telephone Users Surcharge Act includes the 911 surcharge and 988 surcharge.

The 911 surcharge and 988 surcharge are due on each retail transaction that involves a sale of prepaid MTS to a California consumer, unless otherwise exempt.

Prepaid MTS sellers must collect local charges as a percentage of total prepaid MTS retail sales (if local charges apply). For more information on local charges, see the Sellers section on the Industry Topics webpage of our Tax Guide for Sellers of Prepaid Mobile Telephony Services (MTS) and Telecommunication Service Suppliers.

Certain small sellers of prepaid MTS are not required to collect the local charge from their customers and report and pay those amounts to us. For more information on small prepaid MTS seller, see the Certain Sellers are Not Required to Collect Local Charges section on the Sellers webpage of our Tax Guide for Sellers of Prepaid Mobile Telephony Services (MTS) and Telecommunication Service Suppliers.

The 911 surcharge, 988 surcharge, and local charges (if local charges apply) generally apply to amounts charged for:

  • Prepaid wireless airtime cards
  • Prepaid wireless cards compatible with pay-as-you-go cell phones
  • Prepaid wireless minutes
  • Prepaid wireless plans
  • Prepaid wireless refill or top-off cards
  • Prepaid wireless eCards
  • Prepaid mobile data or any other services when sold with any of the above (If local charges apply, they must be collected on the total combined selling price unless the seller can identify the price of the mobile data services and other services from its books and records.)
  • Any product or service (except a cell phone), when sold with prepaid MTS for a single non-itemized price (If local charges apply, they must be collected on the total combined selling price unless the seller can identify the price of the mobile data services and other services from its books and records.)
  • A cell phone sold with prepaid MTS for a single non-itemized price (if local charges apply, they must be collected on the total bundled selling price of the cell phone and prepaid MTS) unless certain circumstances apply, such as only a minimal amount ($5 or less, or 10 minutes or less) of prepaid MTS is transferred

You can find the current rates on our 911 Surcharge, 988 Surcharge, and Local Charge Rates webpage.

For more information about your collection requirements as a seller of prepaid MTS, see our Tax Guide for Sellers of Prepaid Mobile Telephony Services (MTS) and Telecommunication Service Suppliers.

Covered Battery-Embedded (CBE) Products

If you sell covered battery-embedded (CBE) products to California consumers, you must register with us for a CBE waste recycling fee account. The fee account is a separate account from your seller's permit.

The CBE waste recycling fee is assessed on the retail purchase or lease of certain new or refurbished CBE products, as defined in Public Resources Code (PRC) section 42463(f). Generally, a retailer or lessor of CBE products must collect the fee from purchasers (customers) at the time of the retail sale or lease of these products, unless the retailer makes an election under the PRC section 42464(e) to pay the fee to a vendor on behalf of the consumer. A retailer may keep three percent of the CBE waste recycling fee collected as reimbursement for their fee collection costs.

A CBE product is defined as a product containing a battery from which the battery is not designed to be easily removed with no more than commonly used household tools such as a flathead, crosshead, and Phillips screwdrivers, paper clips, coins, or hex keys (14 Cal. Code Regs, tit. 14, section 18660.5).

  • CBE products do not include the following: Covered electronic devices subject to the eWaste recycling fee, as specified in PRC section 42463, subdivision (f)(2)(B).
  • Certain medical devices, as specified in PRC section 42463, subdivision (f)(2)(A)
  • Certain energy storage systems, as specified in PRC section 42463, subdivision (f)(2)(C)
  • Certain electronic nicotine delivery systems, as specified in PRC section 42463, subdivision (f)(2)(D)

For examples of what CBE products are, please see CalRecycle's website for compiled lists of potential CBE products based on the required notices sent by manufacturers to retailers, according to PRC section 42466.2.

Visit our Tax Rates — Special Taxes and Fees webpage to view current rates for the CBE waste recycling fee.

For more information about your collection requirements as a retailer of CBE products, see our Covered Electronic Waste Recycling Fees Guide.

California Redemption Value (CRV)

Generally, if the sale of the beverage is taxable, tax also applies to the separate California Redemption Value (CRV) charge. The amount subject to tax is the combined selling price of the beverage, the container, and the CRV.

If you give the beverage away and charge only the CRV fee, tax still applies to the amount charged for the CRV if the sale of the beverage would have been taxable.

If you bottle, produce, import, or sell beverages in California, you may need to register with California Department of Resources Recycling and Recovery (CalRecycle) under the California Beverage Container Recycling and Litter Reduction Act. For more information on registration with CalRecyle, contact the CalRecycle registration unit.

The CRV program is administered by CalRecycle. Questions regarding the fee should be directed to them. This guide covers only how sales tax applies to CRV charges.

For more information about the CRV fee, visit CalRecycle's Beverage Container Recycling webpage.

Hot Prepared Foods

The sale of hot food is usually taxable whether it is sold to go or for consumption on your store premises.

A hot food product is food that has been heated to above room temperature and is still considered hot even after it has cooled because it was intended to be sold as a hot food.

Examples of hot prepared foods include:

  • Hot sandwiches
  • Hot soup, bouillon, or consommé
  • Hot pizza, hot dogs, and nachos
  • Hot barbecued or fried chicken

One notable exception is hot baked goods sold to go.

Sales of hot baked goods to go, such as hot baked pretzels or croissants, are exempt from sales tax. If sold in a combination package with hot prepared foods or with a hot beverage, however, the entire combination package is taxable. Hot baked goods purchased for consumption at your store are taxable.

The sale of a toasted sandwich not intended to be sold in a heated condition, such as a cold tuna sandwich on toast, is not a sale of a hot prepared food product.

For more information, see Tax Guide for Restaurant Owner.

Foods Heated in a Microwave Oven

If you sell a food product that is normally exempt from tax (such as a frozen burrito), the product may become taxable if it is heated in a microwave oven before the sale. The location of the microwave generally determines whether the sale is subject to tax:

  • If the microwave is accessible to customers, the food sold is regarded as not sold in a heated condition and the microwave is provided as a convenience to your customers, who may choose to heat the product.
  • If the microwave is behind the counter, the food sold is regarded as a hot prepared food, and is therefore taxable.

For more information, see Tax Guide for Restaurant Owners.

Hot Beverages

The sale of hot beverages, such as coffee and hot chocolate, is exempt from sales tax if the beverages are sold to go and for a separate price. If the hot beverage is sold in combination with a bakery or a cold food product for a single price, the sale is subject to sales tax. For more information on combination packages, see Combination Packages.

Hot soup, bouillon, and consommé are not considered hot beverages. They are considered to be hot prepared foods, and their sale is subject to tax.

Combination Packages

When you sell two or more food items together in a to-go package for a single price, the tax application depends on the package's components and whether the 80-80 rule applies to your business. For more information regarding combination packages and 80-80 rule, see the Industry Topics webpage from our Tax Guide for Restaurant Owners.

Including hot food or hot beverages within a combination package makes the entire package taxable.

Example:
You are selling a combination of hot coffee and a donut for a single price of $1.50. Since you are selling a hot food product (coffee) and a cold food product (donut) together for a single price, tax would apply to the $1.50 selling price. If the items were sold separately and to go, the sale would not be taxable.

If you sell a combination to-go package that includes cold food and a soda, the soda's selling price is taxable.

Sales of food and beverages for your customers to eat in your store are always taxable.

For more information, see Tax Guide for Restaurant Owners.

If you sell a package (such as a gift basket) containing both food products (such as dried fruit) and nonfood products (such as wine or toys), the tax application depends on the retail value of the component parts. For more information on how to determine the taxable portion of the combination package, see publication 106, Combination Packages and Gift-Wrapping.

Newspapers and Magazines

Sales of newspapers, magazines, and other periodicals to your customers are taxable.

Newspapers, magazines, and other periodicals you provide without charge are not taxable. If you request payment or suggest a donation for such items but do not require a payment or donation, you are providing the items without charge.

For more information on the application of tax to sales of periodicals, see Regulation 1590, Newspapers and Periodicals.

Manufacturer's Coupons, Rebates, and Other Promotions

A manufacturer's coupon is a coupon allowing customers to receive a percentage or amount off the advertised selling price when purchasing the manufacturer's product. The manufacturer may give you money as reimbursement for the value of the coupon. The amount you receive from a manufacturer or other third party as reimbursement for a discount is considered part of your gross receipts and is taxable, along with the amount you receive from your customer.

Example:
A customer clips a coupon out of a newspaper and presents it to you at the time of sale to receive a discounted price on the product purchased. The coupon indicates Manufacturer's Coupon. Since the manufacturer will compensate you for the amount of the price reduction, the value of the coupon is included in your gross receipts. Tax is based on the full retail selling price of the product which includes both the amount paid by your customer and the amount reimbursed by the manufacturer.

If you participate in rebates or incentives offered by manufacturers or vendors to promote sales of specific products, the rebates may be subject to tax. Payments received from a third-party rebate or incentive program are taxable when:

  • The third party requires you to reduce the sales price of the particular product to receive the rebate payment.
  • Conditions for receipt of payment must be certain (for example, you are guaranteed a $1.00 rebate for every pack of cigarettes you sell), not dependent on other factors outside your control (such as sales quotas or other variable criteria).
  • The payment must be for the same amount on every transaction (for example, $1.00 for each pack of cigarettes sold under the rebate program).

Example:
You purchase bottle openers directly from the manufacturer and you enter into a buy-down rebate program with them. For this example, you normally sell the bottle opener for $5.00, but under a buy-down rebate plan, you agree to sell the bottle opener for $4.50 and receive $0.50 from the manufacturer. The tax amount due is based on your gross receipts for the sale, which includes both the amount paid by your customer and the rebate amount—in this case, $5.00 per bottle opener sold.

Below are two examples where consideration received from a manufacturer is not considered gross receipts from the sale of a product:

  1. You receive compensation from a manufacturer for giving its brand of soda preferential shelf space or displaying the soda in a specific area of your store.
  2. You receive compensation from a manufacturer for selling a certain amount of its brand of soda during a particular period (for example, July through September).

When you participate in a promotional program, the payments you receive from a person other than your customer are presumed taxable until you can present documentation to establish the payments as being nontaxable. For examples of documentation that will establish the payments as nontaxable, see Regulation 1671.1, Discounts, Coupons, Rebates, and Other Incentives, subdivision (c)(3)(A).

When you offer your customers a store discount on taxable merchandise and you are not being paid by any third party, you only owe tax on the amount you receive from your customer.

For more information, see publication 113, Coupons, Discounts, and Rebates and Regulation 1671.1.

Lottery Sales

Sales of tickets for California Lottery games are not taxable, and you should not include them on your sales and use tax return as part of your gross receipts.

Remember, it is important to keep your receipts for nontaxable sales (such as lottery tickets) separate from receipts for taxable sales.

Service Charges (Money Order and Return Checks)

Service charges to your customers for money orders and returned checks are not taxable.

You should not include service charges for money orders or returned checks on your sales and use tax return as part of your gross receipts.

Service Charges (Business Surcharge)

If you separately add a surcharge to your taxable sales, whether it be a flat fee or a percentage of the selling price, tax generally also applies to the surcharge amount. Surcharges have various titles, such as a merchant card processing fee, healthcare surcharge, COVID-19 surcharge, wage increase fee, inflation fee, tourism fee, fuel surcharge, paid sick leave fee, restaurant surcharges, or other such charges. For more information, see our special notice L-903, Does Your Business Add a Surcharge?

Sales of Fixtures and Equipment

If you sell any fixtures or equipment used in your business, you should pay taxes on the selling price. Sales of fixtures and equipment you use are taxable even if they occur as part of the sale, reorganization, or closure of your business.

For more information, see Regulation 1595, Sale of a Business—Business Reorganization.

Recording Your Sales Accurately

There are different ways to record sales. The two most common methods are key-ring and scanner. Retailers that use scanners tend to have lower error rates than retailers that use key-ring methods.

If you use a scanner, be sure to program it so that sales of items correctly scan as taxable or nontaxable.

Sales Suppression Software Programs and Devices

It is a crime for anyone to knowingly sell, purchase, install, transfer, or possess software programs or devices used to hide or remove sales and to falsify records.

Violators could face up to three years in county jail and fines of up to $10,000. They will also be required to pay all illegally-withheld taxes, including penalties and interest.

Purchases

Items Purchased for Resale

When you issue a resale certificate to purchase taxable items for resale, you don't pay sales tax at the time of purchase. Instead, sales tax applies when you sell the items at retail.

If you purchase an item with a resale certificate and use it, you owe use tax to us on that item. The use tax rate is the same as the sales tax rate in effect at the location of use.

Examples of how you may use merchandise for purposes other than for resale include the following:

  • Merchandise used for donations to certain organizations,
  • Merchandise withdrawn from inventory for personal use,
  • Merchandise given to friends, associates, or employees, and
  • Merchandise used or consumed in your business operations and not sold.

If you know at the time of purchase that the taxable merchandise you are buying will not be resold, you cannot issue a resale certificate and must pay sales or use tax. If you have paid sales or use tax on merchandise and resell it before you have made use of it, you can take a deduction on the tax return in which you report the sale. You can deduct the amount of the purchase price before sales or use tax was added. It is reported on your return under Cost of Tax-Paid Purchases Resold Prior to Use.

For more information, see Regulation 1668, Sales for Resale.

Supplies, Equipment, and Other Business Expenses

Items you purchase for business use (such as displays, advertising materials, bookkeeping and maintenance supplies, storage equipment, and refrigeration units) are subject to tax at the time of purchase.

Normally, such items are purchased from local suppliers who add and report sales tax. However, wrapping and packaging supplies used to wrap merchandise or bags for items sold to your customers may be purchased for resale. All other purchases of supplies, however, are generally subject to tax.

If you purchase equipment or supplies from an out-of-state seller, the sale is subject to use tax. For more information, see Use Tax below.

If the out-of-state seller does not charge California use tax, you should report the purchase price on your tax return (under Purchases Subject to Use Tax).

Use Tax

If you purchase taxable property without paying California tax and use the property for a purpose other than resale, you owe use tax. For example, if you issue a resale certificate to purchase soda but give the soda away or consume it, you owe use tax based on its purchase price.

The use tax rate is the same as the sales tax rate in effect at the location of use.

To pay use tax, report the taxable item's purchase price 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.

For more information, see publication 110, California Use Tax Basics, and publication 123, California Businesses: How to Identify and Report California Use Tax Due.

Inventory

Inventory Controls

Keeping good books and records will help you detect any losses early. We strongly recommend that you:

  • Keep records of all merchandise removed from inventory.
  • Keep accurate and complete records of sales and purchases.
  • Take a physical inventory at least once a year.
  • In the period between inventories, compute the cost of merchandise sold, add the expected mark-up percentage, and deduct discounts for the time period involved. Your computed figure should be very close to the sales made for the same period the prior year.
  • Ensure that your records of purchases for resale are accurate and complete, and do not include supplies or other items not for resale.

Common Inventory Losses

Look out for the following types of losses:

  • Money pocketed by employees and covered up by not ringing up the sale or ringing it up at a lesser amount.
  • Merchandise stolen by employees, clean-up crews, or other people with store access.
  • Short deliveries or theft by delivery people.
  • Shoplifting by customers.

Thefts of cash are not deductible for sales tax purposes because tax is measured by sales.