Industry Topics for Alcoholic Beverage Tax

Definitions

Below are some key definitions for the alcohol beverage industry:

Beer: "Beer" means any alcoholic beverage obtained by the fermentation of any infusion or decoction of barley, malt, hops, or any other similar product, or any combination thereof in water, and includes ale, porter, brown, stout, lager beer, small beer, and strong beer, but does not include sake, known as Japanese rice wine. Beer may be produced using the following materials as adjuncts in fermentation: honey, fruit, fruit juice, fruit concentrate, herbs, spices, and other food materials. Beer aged in an empty wooden barrel previously used to contain wine or distilled spirits shall be defined exclusively as "beer" and shall not be considered a dilution or mixture of any other alcoholic beverage. (Business and Professions Code section 23006)
Wine: "Wine" means the product obtained from normal alcoholic fermentation from sound ripe grape juice or other agricultural products containing natural or added sugar or any such alcoholic beverage which is added grape brandy, fruit brandy, or spirits of wine, which is distilled from the particular agricultural product or products the wine is made from and other rectified wine products and by whatever name and which does not contain more than 15 percent added flavoring, coloring, and blending material and alcohol by volume no more than 24 percent, and includes vermouth and sake, known as Japanese rice wine. (Business and Professions Code section 23007)
Distilled Spirits: "Distilled spirits" means an alcoholic beverage obtained by the distillation of fermented agricultural products, and includes alcohol for beverage use, spirits of wine, whiskey, rum, brandy, and gin, including all dilutions and mixtures thereof. "Distilled spirits" does not include "powdered alcohol," as defined in Business and Professions Code section 23003.1. (Business and Professions Code section 23005)

General Tax Application

The following are general applications for the alcoholic beverage tax:

Beer and wine

The excise tax on beer and wine is generally paid by manufacturers, wine growers, and importers. Sellers of beer and wine must pay the excise tax if the tax was not paid by the manufacturers, winegrowers, or importers. Beer and wine are presumed to be sold, and the alcoholic beverage tax is due, when it leaves a manufacturer's facility or is removed from an internal revenue bonded premise, unless:

It was sold and delivered in internal revenue bond to another beer manufacturer or wine grower in California.
It was exported or sold for export and then exported from California.
The sale is otherwise exempt.

Distilled spirits

In general, the excise tax on distilled spirits is paid by distilled spirits wholesalers and distributors. Distilled spirits are presumed to be sold, and the alcoholic beverage tax is due when they are sold to in-state retailers or to consumers, unless the distilled spirits:

Are still in the possession of the licensee.
Have been sold or delivered to another licensed distilled spirits manufacturer, rectifier, importer, or wholesaler.
Have been exported outside of California or sold for export by the licensee and exported from California within 90 days from the date of sale.
Have been lost through unintentional destruction prior to the termination of possession.
Have been lost through an unaccounted-for loss prior to the termination of possession. The unaccounted for loss must not exceed the tolerance set forth in section (b) of Regulation 2550, Destruction and Unaccounted For Losses of Distilled Spirits.
Are otherwise exempt from taxation. See the General Exemptions section below.

Tax Credits Allowed

Tax credits may be allowed for:

Beer or wine subsequently exported outside California or destroyed (maintain documentation to support the exemption/credit); and
Distilled spirits sold to certain persons holding a permit under federal law and who use the distilled spirits in food products.

General Exemptions

The following are exempt from the alcoholic beverage tax:

Alcoholic beverages traveling through California destined for outside the state.
Certain sales of alcohol, distilled spirits, or wine for use in trades, professions, or for industrial purposes, and not for beverage purposes (Business and Professions Code sections 23111, 23112, and 23113). See section below for more information regarding alcohol beverages sold for industrial purposes.
Distilled spirits, beer, and wine sold for export and then exported.
Sales of alcoholic beverages to certain commercial carriers of persons when beverages will be used on their facilities outside California.
Sales of distilled spirits by brandy manufacturers, distilled spirits manufacturers, rectifiers, importers, and distilled spirits wholesalers to U.S. Army, Air Force, Navy, Marine Corps, or Coast Guard exchanges, officers' clubs, noncommissioned officers' and enlisted persons' clubs, or messes located in California.

Distilled Spirits and Wine Sold for Industrial Uses

There is an alcoholic beverage tax exemption on the sale of alcohol, distilled spirits, or wine by distilled spirits manufacturers, brandy manufacturers, rectifiers, industrial alcohol dealers, or winegrowers for industrial uses, but generally only when sold in packages with a capacity larger than one gallon (Revenue and Taxation Code sections 32052 and 32053).

Alcohol, distilled spirits, or wine used in the manufacture of any of the following is considered an industrial use, if the products are unfit for consumption as a beverage (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
Sirups (Syrups)
Food products
Scientific, chemical, or industrial products

Exempt sale of alcohol, distilled spirits, or wine for industrial uses can be claimed on:
Alcoholic Beverage Tax Form	Associated line
*Distilled Spirits Tax Return*	Line: Other exemptions
*Winegrower Tax Return*	Line: Federal tax-paid wine sold for industrial use
*Beer & Wine Importer Tax Return*	Line: Other exemptions

Destruction of Spoiled Beer and Wine

For registered beer and wine importers, beer manufacturers, or winegrowers, tax does not apply to spoiled beer or wine destroyed under the supervision of a CDTFA representative. You must receive written approval from us prior to destroying the beer or wine to claim tax not due or a credit. (Revenue and Taxation Code section 32176). A claim for tax not due or a credit may be taken for the following:

A claim for tax not due on spoiled beer or wine that has not yet been sold in California
A credit on tax-paid beer or wine that was sold in California, subsequently spoiled, and then returned to you by the wholesalers.

The claim for tax not due or credit on spoiled beer or wine can be claimed on:
Alcoholic Beverage Tax Form	Associated line
*Beer Manufacturer Tax Return*	Line: Federal tax-paid beer destroyed as stated in R&TC 32176 (b)
*Winegrower Tax Return*	Line: Other exemptions
*Beer & Wine Importer Tax Return*	Line: Spoiled beer or Line: Spoiled wine

Unsupervised Destruction—Beer and Wine Importers

Beer and wine importers can claim a credit for destruction of small quantities of tax-paid beer or wine without CDTFA supervision. However, you must receive written approval from us prior to destroying the beer or wine to claim the tax not due or credit. (Regulation 2552).

For the purposes of unsupervised destruction, “small quantities” means the following:

The quantity of beer destroyed is 2,500 gallons or less, or
The quantity of still wine destroyed is 2,500 gallons or less, or
The quantity of champagne or sparkling wine destroyed is 1,500 gallons or less.

Supervised Destruction

If you do not qualify for unsupervised destruction as noted above, you may still be eligible to claim tax is not due or a credit on tax-paid beer or wine that is destroyed with supervision (Revenue and Taxation Code section 32176). We will contact you regarding the appropriate type of supervision required to claim tax is not due or credit after you complete and submit CDTFA-775, Application for Approval and Declaration of Destruction for Spoiled Beer or Wine.

Submitting a Beer or Wine Destruction Approval Request

To submit a destruction request, a beer and wine importer, beer manufacturer, or winegrower may submit form CDTFA-775, Application for Approval and Declaration of Destruction for Spoiled Beer or Wine. The steps below outline the process for a destruction request:

Complete Sections I and II of the CDTFA-775 and email it to CDTFA775@cdtfa.ca.gov. On the subject line of the email, include the following: Destruction Approval Request – CDTFA Account (input account number).
We will review your request and determine whether your beer and/or wine qualifies for an unsupervised destruction or if supervision by a CDTFA representative is required. We will contact you if additional information is needed prior to approval.
If your request is:

Approved – We will complete Sections III and IV (if applicable). The approval process generally takes up to three business days; however, if an appointment with a CDTFA representative is needed, the process can take up to 12 business days. Once approved, the form will be available on your online services profile at the account level under the unread messages.
Not approved – We will contact you and the submitted CDTFA-775 will not be returned to you.

Please complete Section V after all beverages listed in Section I have been destroyed. The form must be signed by the authorized person in the businesses' organization who witnessed the disposal or destruction of the spoiled alcoholic beverages.
When filing your return online, you are required to upload the completed CDTFA-775 for each filing period you are claiming tax is not due or a credit. You may be required to upload additional supporting documentation (for example, destruction facility invoices, Notice of Intent submitted to the Alcohol and Tobacco Tax and Trade Bureau (TTB), bills of lading, among others), and you will be notified if this is the case. You should retain the original documents for your records.

All claims of tax not due or credits are subject to verification and may be disallowed for improper destruction and/or insufficient documentation.

Bringing Alcoholic Beverages into California by US Military Personnel for Personal or Household Use

The California Department of Alcoholic Beverage Control (ABC) licenses the manufacture, importation, and sale of alcoholic beverages in California. We collect the alcoholic beverage excise taxes from persons that are required to be licensed with ABC and not from consumers, unless ABC determines that the consumer is required to be licensed with them. The Business and Professions Code section 23661(e) exempts military personnel from the California licensing requirements when importing alcoholic beverages into California for personal or household use.

For information and requirements regarding the importing of alcohol beverages into California, we recommend that you read ABC article, Importing Alcoholic Beverages for Personal or Household Use which can be found on ABC's website. This article includes a section for military personnel.

Even though you may not owe the California alcoholic beverage excise tax on your alcoholic beverages, you may owe California use tax based on your purchase price of the alcoholic beverages that you bring into California for consumption. Please see our guide on Use Tax for more information.

Out-of-State Winegrower Making Sales of Wine to California Residents

Out-of-state winegrowers making sales of wine to a resident of California must first obtain a license or permit issued by the Department of Alcoholic Beverage Control (ABC). Please visit ABC's website for additional requirements and information.

If you sell and make shipments of wine directly to consumers in California, such sales are retail sales and you must report all applicable sales and use tax to us, in addition to the alcoholic beverage tax.

Once you receive the permit from ABC, you must register with us for an alcoholic beverage tax account and pay the alcoholic beverage tax, the same as a California winegrower.

Example

You operate a small winery located in the state of Washington that will make direct shipments of wine to your customers in California. You are required to obtain all the following:

The proper license or permit from ABC to ship wine into California.
A seller's permit from us to file your sales and use tax returns and pay any tax due to us.
A winegrower/wine direct shipper account from us to file your winegrower returns and pay any tax due to us.
- We will send you a request for registration shortly after you apply for the proper license or permit with ABC.

Recordkeeping

You must maintain your records for at least four years unless we give you written authorization to destroy them sooner. For additional information regarding record retention, please see Regulation 4901.

Also, laws administered by ABC generally require licensees keep records at their licensed premises of the manufacture, importation, sale, or distribution of alcoholic beverages manufactured, imported, sold, or distributed by the licensee in California (Business and Professions Code section 25752).