Tax Guide for
Liquor Store Operators and Owners

Tax Guide For Liquor Store Operators and Owners

Helping your business succeed is important to the California Department of Tax and Fee Administration (CDTFA). Taxes you collect and pay to the state help fund state and local services and programs important to you and your community. We recognize that understanding tax issues related to your industry can be time-consuming and complicated, and want to help you get the information you need so you can focus on starting and growing your business.

To help you better understand the tax obligations specific to liquor store operators and owners, we have created this guide to tax issues and information important to your business.

How to Use This Guide

Each section of this guide contains information important to your business. The Industry Topics section covers many topics, each in an at-a-glance format that can be expanded to provide more extensive information if you need it.

The Getting Started section provides key resources related to registration, filing returns, account maintenance and other important information you need.

Lastly, the Resources section provides links to a wealth of information, including web-based seminars, forms and publications, statutory and regulatory information, and access to live help from our customer service representatives.

Please note that this information included is general in nature and is not intended to replace any law or regulation.

If You Need Help

If at any time you need assistance with topics included in this guide – or with topics not included – feel free to contact us by telephone or email. Contact information and hours of operation are available in the Resources section.

If you have suggestions for improving this guide, please contact us via email.

If you own a business in California, and you expect to be making taxable sales, you must register with us for a seller's permit and file regular sales and use tax returns. You may be required to register for other licenses or accounts. Using our online registration link below you can register for a seller's permit and also obtain other necessary licenses or accounts. Listed below are other tax and fee programs that may be applicable to liquor stores.

Cigarette and Tobacco Products Licensing Act

You must register with us for a Cigarette and Tobacco Products Retailer's License if you intend to purchase and sell cigarettes or tobacco products (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 of a tobacco product) at retail. You must obtain this license in addition to your seller's permit. A retailer's license is valid for a 12-month period, is not assignable or transferable, and must be renewed annually. A license fee payment is required for each retail location at initial registration and every year at the time of renewal and may not be prorated. You may refer to our Tax Rates – Special Taxes and Fees page for cigarette and tobacco products retailer's license fee amounts. 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. You may not purchase or sell cigarettes and/or other tobacco products without a valid Cigarette and Tobacco Products Retailer's License.

Cigarettes must have the valid California cigarette tax stamp affixed to each package and tobacco products must be tax-paid.

For more information on the cigarette and tobacco products tax and licensing program, refer to publication 78, Sales of Cigarettes and Tobacco Products in California and the Cigarette and Tobacco Products tax guide.

Registration

Online Registration — Register with us for your seller's permit and apply for any of the licenses, permits, or accounts listed above, or add a business location to an existing account.

If you have already registered with us, you'll find these tools helpful in maintaining your account.

Filing and Payments

Notice of Business Change — Keep your information current by using the links below and notifying us of any business changes.

The Basics

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

For liquor stores, most taxable sales are going to be of beverages. However, you may also be required to collect sales tax on your sales of taxable food or periodicals, among other things.

If you consume or give away taxable items such as 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.

Most people who sell taxable items in California, even temporarily, must register with the CDTFA for a seller's permit. Registering for a seller's permit is free, although in some cases a security deposit may be required. If you have liquor stores in multiple locations, you must register each location with us. You can register with the CDTFA for a seller's permit or consolidated seller's permit using our online registration service.

Be sure to let us know about any changes to your business, or to your mailing or email address so that we can keep your records updated and inform you of important changes in law, tax rates, or procedure. You can easily update your account information by contacting our Customer Service Center or any one of our field offices throughout the state. Contact information is available in the Resources tab of this guide.

Cigarettes and Tobacco Products

Retail sellers of cigarettes and tobacco products must have a California Cigarette and Tobacco Products Retailer's License before purchasing or selling cigarettes or tobacco products (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 of a tobacco product) at retail. You must obtain this license in addition to your seller's permit. A retailer's license is valid for a 12-month period, is not assignable or transferrable, and must be renewed annually. A license fee payment is required for each retail location at initial registration and every year at the time of renewal and may not be prorated. See our Tax Rates – Special Taxes and Fees page for cigarette and tobacco product retailer's license fee amounts.

As a retailer of cigarettes and tobacco products, you must:

  • Have a valid California Cigarette and Tobacco Products Retailer's License for each location from which cigarettes or tobacco products are sold at retail.
  • Display your license at each retail location so that it is visible to the public.
  • Retain complete and legible purchase invoices at each licensed location for at least one year after the date of purchase.*
  • Purchase cigarettes affixed with valid California cigarette tax stamps and tobacco products that are California tax-paid.*
  • Purchase and sell only those cigarettes and roll-your-own (RYO) tobacco authorized for sale in California as listed on the Office of the Attorney General's California Tobacco Directory.
  • Not purchase cigarettes or tobacco products from other retailers.*
  • Purchase your cigarettes and tobacco products only from a California licensed distributor or wholesaler (or obtain a distributor or wholesaler license as noted below).*
    • If you purchase cigarettes or tobacco products from an out-of-state supplier who does not have a California Cigarette and Tobacco Products License, you must obtain a distributor's license in addition to the retailer's license, and remit California cigarette and tobacco products taxes directly to the state.
    • If you purchase tax-paid cigarettes or tobacco products for resale (to other retailers), you must obtain a wholesaler's license in addition to the retailer's license.
    • For more information please see publication 93, Cigarette and Tobacco Products Taxes.

* Does not apply to a tobacco product that is not subject to the tobacco products tax. For example, vape liquids that do not contain 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 registration service or at any of the CDTFA's 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.

Please visit the Cigarette and Tobacco Products tax guide for more information on the cigarette and tobacco products tax and licensing program.

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.

The transfer records must be prepared at the time of transfer and must include the address and tobacco license number of each retail location, the purchase invoice date, the purchase invoice number, the supplier's name on the invoice, the brand, type of packaging, flavor, and/or style, and the quantity of items transferred.

You must provide such documentation upon request by CDTFA staff or law enforcement.

These requirements do not apply to tobacco products that are not subject to the tobacco products tax. For example, vape liquids that do not contain any 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. You may also attend a tobacco class for retailers or view our online tobacco seminar.

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.

Sales

The list below is a summary of taxable 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.

  • 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, etc.

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

The list below is a summary of nontaxable 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.

  • 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, please see publication 24, Liquor Stores.

Sellers of prepaid mobile telephony services (MTS), such as prepaid minutes and airtime, have certain surcharge and local charge collection requirements.

Beginning January 1, 2020, sellers of prepaid mobile telephony services (MTS) will be required to collect, report, and pay the Emergency Telephone Users (911) Surcharge as a flat fee on each purchase of prepaid MTS made by a prepaid MTS consumer. The 911 Surcharge will be due on each retail transaction that involves a sale of prepaid MTS to a California consumer, unless otherwise exempt.

Sellers of prepaid MTS must continue to collect local charges as a percentage of total prepaid MTS retail sales (if local charges apply).

The 911 Surcharge and local charges (if local charges apply) generally applies 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 ‘e-Cards’
  • Prepaid mobile data or any other services when sold with any of the above
  • Any product or service (except a cell phone), when sold with prepaid MTS for a single non-itemized price
  • A cell phone sold with prepaid MTS for a single non-itemized price, unless only a minimal amount of prepaid MTS is transferred. (A minimal amount of prepaid MTS is $5 or less, or 10 minutes or less)

The current 911 Surcharge rate and local charge rates may be found on our 911 Surcharge and Local Charge Rates webpage.

If you sell prepaid wireless products and services to California consumers, you must register with the CDTFA as a prepaid MTS seller. The prepaid MTS account is a separate account from your seller's permit. For more information about your collection requirements as a sellers of prepaid MTS, please see our Tax Guide for Sellers of Prepaid Mobile Telephony Services (MTS) and Telecommunication Service Suppliers.

Generally, if the beverage you sell is taxable, tax also applies to the separate charge for CRV. 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 CalRecycle under the California Beverage Container Recycling and Litter Reduction Act. Contact the CalRecycle registration unit to register.

Note: 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 the CalRecycle's Beverage Container Recycling page

Heated food is usually taxable whether or not it is sold to-go or for consumption on your store premises.

A food product is hot when it is heated to above room temperature, and is still considered hot even after it has cooled, because it is intended to be sold in a heated condition.

Notable Exception: Hot Baked Goods

Hot baked goods, such as hot baked pretzels or croissants, sold to-go 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.

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 prior to the sale. The location of the microwave oven is the determining factor in whether the sale is subject to tax:

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

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

When you sell two or more food items together in a package to-go for a single price, tax applies depending on the components of the package.

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

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

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

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

Newspapers, magazines, and other periodicals you sell 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.

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

In cases where you offer your customers a store discount on taxable merchandise, you are not being paid by any third party. You owe tax only on the amount received from your customer.

A manufacturer's discount is one where you receive money from a manufacturer or other party 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, please see publication 113, Coupons, Discounts, and Rebates.

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 you make 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.

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.

There are different ways of recording your sales. The two most common methods are key-ring and scanner. Retailers that use a scanner tend to have a lower rate of errors than retailers that use a key-ring method to ring up sales.

If you are using a scanner, be sure to program it so that items you sell are correctly scanning as taxable or nontaxable.

Beginning January 1, 2014, it will be a crime for anyone to knowingly, sell, purchase, install, transfer or possess software programs or devices that are used to hide or remove sales and to falsify records.

Using these devices gives an unfair competitive advantage over business owners who comply with the law and pay their fair share of taxes and fees. Violators could face up to three years in county jail, fines of up to $10,000, and will be required to pay all illegally withheld taxes, including penalties and interest.

Purchases

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 a use tax – at the same rate as the sales tax at the location of use – to the CDTFA.

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

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

Normally such items are purchased from local suppliers who add and report sales tax. However, if you purchase equipment or supplies from an out-of-state seller, the sale is subject to use tax (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").

Note: Wrapping and packaging supplies used to wrap merchandise or bags in which you place items sold to your customers may be purchased for resale. All other purchases of supplies, however, are generally subject to tax.

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

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

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

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 percentage of mark-up, and deduct discounts for the period of time 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

Keep your eye 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 persons with access to the store.
  • Short deliveries or theft by delivery persons.
  • Shoplifting by customers.

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

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

Need to know more? Follow the links below for more information about the topics covered in this guide, as well as other information you might find helpful:

Top Three Resources

Related Publications and Regulations

Publications

Regulations

Related Websites

Other Helpful Resources

  • Sign Up for CDTFA Updates — Subscribe to our email lists and receive the latest news, newsletters, tax and fee updates, public meeting agendas, and other announcements.
  • Videos and How-To Guides — These resources will help you avoid common mistakes, file your tax returns online, and more.
  • City and County Tax Rates — A listing of current and historical tax rates.
  • Special Notices — CDTFA special notices are issued whenever there is a change in law, tax rates, or CDTFA procedures.
  • CDTFA Online Services — Learn about the online services CDTFA offers.
  • Verify a Permit or License — You can use this application to verify a seller's permit, Cigarette and Tobacco product retailer license, eWaste account, or Underground Storage Tank Maintenance Fee Account.
  • CDTFA Field Offices — A comprehensive listing of all CDTFA field offices and contact information.
  • Get It In Writing! — The Sales and Use Tax Law can be complex, and you are encouraged to put your tax questions in writing.
  • Contact Us — A listing of CDTFA contacts for your questions and concerns.
  • Internal Revenue Service (IRS) Guide for Cash Intensive Businesses – An IRS guide that provides insight to issues unique to cash businesses.
  • Customer Service Center — You can also call our Customer Service Center at 1- 800-400-7115 8 a.m. to 5 p.m. Monday through Friday except state holidays to get answers to many of your questions.