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 are 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.

If you consume or give away taxable items (like 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.

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 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.

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.

You can apply online for a cigarette and tobacco products license using our Online Services or at any of our local field offices. Prospective licensees should consult with their local health department before applying for a California Cigarette and Tobacco Products Retailer's License to determine if there is a local licensing requirement in their community and to learn how to comply with its requirements. In some cases, local licensing requirements may be more restrictive than state licensing requirements.

For more information on the cigarette and tobacco products tax and licensing program, see Tax Guide for Cigarette and Tobacco Products.

Transferring Products Between Stores

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

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

  • The date of the transfer
  • Each 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 documentations when requested by our team members or law enforcement.

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:

  • Be registered with 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 California Electronic Cigarette Excise Tax.

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, a flavored tobacco product or a tobacco product flavor enhancer.

The California Office of the Attorney General must establish and publish a list of unflavored cigarettes and tobacco products, known as the Unflavored Tobacco List (UTL). Any product not listed on the UTL, once posted, is considered a flavored product.

We or a law enforcement agency may seize flavored tobacco products and tobacco product flavor enhancers that violate the flavored tobacco products ban (FTPB) or are not listed on the UTL. Upon seizure, civil penalties will be imposed on retailers who possess, store, own, or have sold flavored cigarettes, tobacco products, or tobacco product flavor enhancers.

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

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

For more information, see publication 24, Liquor Stores.

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.

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

For more information, see publication 24, Liquor Stores.

Prepaid Mobile Telephony Services (MTS)

If you sell prepaid wireless products and services to California consumers, you must register with the 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 continue collecting 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.

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.

California Redemption Value (CRV)

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

If you are bottling, producing, importing or selling 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. To do so, 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.

Notable Exception: 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.

For more information, see publication 22, Dining and Beverage Industry.

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 publication 22, Dining and Beverage Industry.

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.

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 publication 22, Dining and Beverage Industry.

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 considered to be providing the items without charge.

Manufacturer's Coupons, Rebates, and Other Promotions

If you accept discount coupons that allow your customers to purchase merchandise at a reduced price, you owe tax on the amount you receive for the sale, plus any amount you receive from a third party as payment.

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 received from your customer.

A manufacturer's coupon is when a manufacturer gives you money as reimbursement. 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.

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

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

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.

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.

For more information, please see publication 24, Liquor Stores.

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).

For more information, see publication 24, Liquor Stores.

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 24, Liquor Stores, 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.

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

For more information, see publication 24, Liquor Stores.