Tax Guide for Distillers and Distributors of Distilled Spirits

California has a growing number of distilleries and increasing sales of distilled spirits. We recognize that understanding and dealing with tax issues related to the distilled spirits industry can be time-consuming and we want to help you get the information you need so you can spend more time focusing on your business.

To help you better understand your sales, use, and alcoholic beverage tax obligations, we have created this guide with topics important for distillers and distributors of distilled spirits.

How to Use This Guide

Each section of this guide contains information important to your business. The Getting Started section provides key resources related to registration, filing returns, account maintenance, required licenses, and other important topics.

The Ingredients section provides guidance on the tax application to purchases of many items used by distilleries.

The Industry Topics section covers many topics in an at-a-glance format which can be expanded to show more extensive information.

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.

Get It in Writing

Six different bottles of liquor.

Please note that the information included in this guide is general in nature and is not intended to replace any law or regulation. The tax and fee laws can be complex. If you have specific questions about the information in this guide, the BOE recommends that you get answers from us in writing. This enables us to give you the best advice and may help protect you from owing tax, penalties, and interest in case we give you erroneous information.

To request written advice, please complete and submit the General, Non-Confidential Tax Questions Form online. For more details on how to request written advice, please see BOE-8, Get It in Writing!

If You Need Help

If you need assistance, please see our How to Contact Us.

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

Getting Started

If you operate a distillery and manufacture spirits for sale, you must register for a seller's permit and file sales and use tax returns with the Board of Equalization (BOE).

A distilled spirit is defined by the Business and Professions Code as an alcoholic beverage, obtained by the distillation of fermented agricultural products, and includes alcohol for beverage use, and spirits of wine, whisky, rum, brandy, and gin, including all dilutions and mixtures thereof. In addition to a seller's permit, you must register for an Alcoholic Beverage Tax account with the BOE if you are required to obtain any of the following licenses issued by the Department of Alcoholic Beverage Control (ABC):

  • Brandy Manufacturer (Type 03) – This license authorizes the holder to manufacture only brandy but not any other distilled spirits. Brandy is made by the distillation of wine or fermented fruit.
  • Distilled Spirits Manufacturer (Type 04) – This license authorizes the holder to manufacture distilled spirits from naturally fermented materials or in any other manner. In addition to production, the licensee functions include packaging, bottling, rectifying, and flavoring.
  • Distilled Spirits Manufacturer's Agent (Type 05) – This license authorizes the holder to possess, export, or cut, blend, mix, flavor, and color distilled spirits for his or her own account or for the account of another manufacturer, manufacturer's agent, rectifier, or wholesaler, and the packaging and the sale or delivery thereof.
  • Rectifier (Type 07) – This license authorizes the holder to cut, blend, rectify, mix, flavor and color distilled spirits and wine upon which excise tax has been paid and, whether rectified by the licensee or another person, to package, label, export and sell the products to persons holding licenses authorizing the sale of distilled spirits.
  • Brandy Importer (Type 11) – This license authorizes the holder to import brandy and is only issued to a person who holds another type of license permitting the sale of brandy for resale. Brandy is included in the definition of distilled spirits.
  • Distilled Spirits Importer (Type 12) – This license authorizes the holder to import and export distilled spirits and is only issued to a person who holds another type of non-retail distilled spirits license. This license has no sale privileges and permits the holder to import and export alcoholic beverages, and to transfer the beverages to the holder under another license.
  • Distilled Spirits Importer's General (Type 13) – This license authorizes the holder to import distilled spirits and to sell distilled spirits to distilled spirits manufacturers, distilled spirits manufacturer's agents, distilled spirits wholesalers, rectifiers and distilled spirits general importers.
  • Customs Broker (Type 15) – This license authorizes the holder to act as an agent or broker for a person licensed as an importer for a person whose place of business is out of state, in regard to the importing of alcoholic beverages into California, in United States Internal Revenue bond, or in United States Customs bond.
  • Distilled Spirits Wholesaler (Type 18) – This license authorizes the holder to sell distilled spirits to other licensees for the purpose of resale.
  • Industrial Alcohol Dealer (Type 19) – This license authorizes the holder to sell alcohol for use in the trades, professions, and industries, but not for beverage use.
  • Distilled Spirits Rectifier's General (Type 24) – This license authorizes the holder to cut, blend, rectify, mix, flavor and color distilled spirits. The license holder may not rectify wine or sell distilled spirits to retailers.
  • On-Sale General for Train (Type 53) – This license authorizes the holder, who is a common carrier, to sell distilled spirits to train passengers.
  • On-Sale General for Airplane (Type 55) – This license authorizes the holder, who is a common carrier, to sell distilled spirits to airplane passengers.
  • Craft Distiller (Type 74) – This license authorizes the holder to manufacture up to 100,000 gallons per fiscal year of distilled spirits, excluding brandy. In addition to other privileges, this licensee may sell distilled spirits to consumers for consumption on the premises in a bona fide eating place, which is located on the licensed premises.

Additional information regarding alcoholic beverage licenses issued can be found on the Department of Alcoholic Beverage Control's website.

Interstate Alcoholic Beverage Transporter's Permit

Any common carrier, except railroad and steamship companies, before engaging in the business of transporting shipments of alcoholic beverages into California, must register with the BOE and apply for an interstate alcoholic beverage transporter's permit, which, upon issuance, is valid until revoked by the BOE.

Equipment Exemption

Certain equipment purchases and leases by distilleries may qualify for a partial exemption from sales and use tax. To see if your purchases qualify, please see our Manufacturing and Research & Development Exemption guide.

Certain purchases of farm equipment and machinery by qualified persons engaged in agricultural activity may be partially exempt from sales and use tax. To see if your purchases qualify, please see our Tax Guide for the Agricultural Industry.

Registration

Online Registration – Register with the BOE for your seller's permit and apply for any of the licenses, permits, or accounts applicable to your type of business. The registration system will prompt you when you select "Register a business activity with BOE" from Registration – Main Menu.

Sales & Use Tax Returns

Tax Return Filing Deadlines – Find your filing due dates.
File a Tax Return Online – BOE's online filing service is easy, fast, and free!
Online Payment Options – Make payments online for tax and fee programs.

Alcoholic Beverage Tax Returns & Reports

Alcoholic Beverage Tax account holders are required to file the applicable alcoholic beverage tax returns and reports in addition to their sales and use tax returns. In general, most alcoholic beverage tax returns are due on or before the 15th of the month following the period covered by the tax return. For example, the return for January is due by February 15. However, some returns, such as the Common Carriers Tax Return (BOE-501-DC), have different filing requirements. Be sure to follow the instructions on the back of the forms for filing requirements.

You must file a return or report even if you do not owe tax for the reporting period or did not receive a tax return in the mail. Tax returns filed after the due date are subject to a late penalty regardless of whether any tax is due. The penalty for late filing of a return is 10 percent of the tax due or $50.00, whichever is greater.

Distilled Spirits Forms:

  • BOE-240-A, Distilled Spirits Received from Own Bottling Department
  • BOE-241-A, Distilled Spirits Purchased or Received From Other Licensees in California
  • BOE-242-A, Distilled Spirits Imported Into California
  • BOE-243-B, Claim for Distilled Spirits Excise Tax Exemption on Sale or Delivery to Other Licensees in California
  • BOE-244-B, Claim for Excise Tax Exemption on Distilled Spirits Exported or Sold to Common Carriers and Armed Forces Instrumentalities
  • BOE-501-DS, Distilled Spirits Tax Return

Customs Brokers and Common Carriers Forms:

  • BOE-217, Common Carrier's Report of Delivery
  • BOE-501-DC, Common Carriers Tax Return
  • BOE-1096, Customs Broker's Report of Transactions

Notice of Business Change

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

Sales and Use Tax
Special Tax Accounts

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 Board of Equalization (BOE). As the purchaser, you will need to provide the retailer with a completed resale certificate (BOE-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 BOE. Simply complete form BOE-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.

Industry Topics

Sales and Use Tax in General

In California, all sales of tangible personal property are subject to sales and use tax, unless the law provides a specific exemption or exclusion. The law defines tangible personal property as any item that can be seen, weighed, measured, felt, or touched.

For distillers and distributors, most sales of distilled spirits are for resale to other licensees who are authorized to sell distilled spirits. Distillers or distributors that make retail sales of distilled spirits or other merchandise, such as new or used equipment, gift items, accessories, etc., may owe the sales tax on their sales.

Use tax is a companion to California's sales tax. It is due whenever you purchase taxable items from an out-of-state or foreign vendor for use in California without payment of California tax. You also owe use tax on items that you remove from your inventory and use in California if you did not pay tax when you purchased the items or did not report and pay the tax directly to the BOE. To pay the use tax on your sales and use tax return, report the purchase price of the taxable items under "Purchases Subject to Use Tax." Those purchases become part of the total amount that is subject to tax.

The statewide sales and use tax rate is 7.25%, effective January 1, 2017. In many areas of California, local jurisdictions have added district taxes that increase the tax owed by a seller. Sellers are required to report and pay the applicable district taxes for their taxable sales and purchases. To find the tax rate for an address or location, visit the BOE's Find a Sales and Use Tax Rate website and enter the address as prompted.

Alcoholic Beverage Tax in General

The alcoholic beverage tax is a per-gallon excise tax collected on the sale, distribution, or importation of alcoholic beverages in California. The alcoholic beverage tax is in lieu of all county, municipal, and district taxes on the sale of beer, wine, and distilled spirits.

Generally, the distilled spirits wholesalers pay the alcoholic beverage tax based on the gallons sold to in-state retailers. If the alcoholic beverage tax is not paid by the wholesaler, the tax is due from the seller or retailer of distilled spirits.

The current alcoholic beverage tax rate on distilled spirits, based on "per wine gallon" is:

  • Distilled Spirits, 100 proof or less: $3.30 per wine gallon
  • Distilled Spirits over 100 proof: $6.60 per wine gallon

See Tax Rates – Alcoholic Beverage Tax for all Alcoholic Beverage Tax rates.

See "Conversion of Liters to Wine Gallons" topic below for wine gallon computation.

Responsibility for Alcoholic Beverage Tax

Distilled spirits are presumed to be sold and the excise tax is due when they are sold to in-state retailers, or to consumers if sold by licensed craft distillers.

The presumption that the alcoholic beverage tax is due may be rebutted if you can show that 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 making the report and actually exported from California within 90 days from the date of the 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 shall 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 "Transactions Exempt from the Alcoholic Beverage Tax" below.

Transactions Exempt from the Alcoholic Beverage Tax

The law provides certain exemptions from the Alcoholic Beverage Tax.

The following are exempt from the alcoholic beverage tax:

  • Distilled spirits sold to instrumentalities of the armed forces of the United States organized under Army, Air Force, Navy, Marine Corps, or Coast Guard that include exchanges and officers', noncommissioned officers', and enlisted men's clubs or messes (Revenue and Taxation Code section 32177.5)
  • Alcoholic beverages in continuous transit through California in the possession or custody of common carriers (Revenue and Taxation Code section 32051).
  • Certain sales of alcohol, distilled spirits, or wine for use in trades, professions, or for industrial purposes, and not for beverage purposes (Revenue and Taxation Code section 32052).
  • Alcohol or other distilled spirits sold in packages of a capacity of larger than one gallon for the following uses (Revenue and Taxation Code section 32053):
    • By any state or federal governmental agency, or by any scientific university or college of learning or any laboratory for use exclusively in scientific research, or by any hospital or sanitarium.
    • The manufacture of any of the following products, if the products are unfit for beverage use:
      • Medicinal, pharmaceutical, or antiseptic products, including prescriptions compounded by registered pharmacists
      • Toilet products
      • Flavoring extracts
      • Syrups
      • Food products
      • Scientific, chemical, or industrial products
  • Sales of alcoholic beverages to certain commercial carriers of persons when beverages will be used on their facilities outside California (Revenue and Taxation Code section 32054).
  • Alcoholic beverages sold for export and actually exported (Revenue and Taxation Code section 32211, section 32171(b), and section 32173). Distilled spirits must be exported from California within 90 days from the date of sale.
  • Brandy sold to a licensee of another state pursuant to the provisions of section 23108 of the Business and Professions Code (Revenue and Taxation Code section 32212).
  • Distilled spirits sold by manufacturers, rectifiers, importers, or wholesalers to passenger common carriers engaged in interstate or foreign passenger service (Revenue and Taxation Code section 32213).

You must maintain records to adequately document the above exemptions.

Tax Credits

A distilled spirits taxpayer may claim a credit for alcoholic beverage tax paid on distilled spirits when sold to certain persons who use the distilled spirits in the manufacture of food products.

For more information, see section 32214 of the Revenue and Taxation Code section.

Craft Distillers

Effective January 1, 2016, the Craft Distillers Act of 2015 (Assembly Bill 1295,Stats. 2015, Chapter 640) allows the Department of Alcoholic Beverage Control (ABC) to issue a new craft distillers license to a person who has facilities and equipment for the purpose of, and is engaged in, the commercial manufacture of distilled spirits. ABC designated this new license as Type 74.

The craft distiller's license authorizes the licensee to, among other things:

  • Manufacture up to 100,000 gallons of distilled spirits per fiscal year (July 1 through June 30), exclusive of brandy production.
  • Package, rectify, mix, flavor, color, label, and export only those distilled spirits manufactured by the licensee.
  • Only sell distilled spirits that are manufactured and packaged by the licensee solely to a wholesaler, manufacturer, winegrower, manufacturer's agent, or rectifier that holds a license authorizing the sale of distilled spirits or to persons that take delivery of those distilled spirits within California for delivery or use outside the state.
  • Deal in warehouse receipts. Generally, a warehouse receipt is a document that provides proof of ownership of commodities such as alcoholic beverages that are stored in a warehouse for safekeeping. Warehouse receipts are negotiable and can be transferred, sold or given, from one person to another.
  • Sell all beers, wines, brandies, or distilled spirits to consumers for consumption on the premises in a bona fide eating place located on the licensed premises or on premises owned by the licensee that are contiguous licensed premises operated by and for the licensee, provided that any alcoholic beverage products not manufactured or produced by the licensee are purchased from a licensed wholesaler.
  • Sell up to the equivalent of 2.25 liters in any combination of prepackaged containers per day per consumer of distilled spirits manufactured by the licensee at its premises to a consumer attending an instructional tasting conducted by the licensee on its licensed premises.

For more information about the Craft Distillers Act, go to ABC's website and see their Craft Distiller's License (Type 74) Frequently Asked Questions page.

Tastings of Distilled Spirits

The Craft Distillers Act of 2015 (Assembly Bill 1295,Stats. 2015, Chapter 640) also allows both distilled spirits manufacturers (ABC License Type 04) and craft distillers (ABC License Type 74) to conduct tastings of distilled spirits produced or bottled by, or produced or bottled for, the licensee, subject to certain limitations.

Distilled spirits provided to customers at tasting events must be reported as sales and are subject to the alcoholic beverage tax. The alcoholic beverage tax is owed on all distilled spirits provided to customers at tasting events, even if there is no charge to the customers attending the tasting event.

Distilled spirits tastings at distilleries (licensee's premises) are subject to the following conditions:

  • Limited to 1.5 ounces per person per day.
  • May only include products which the licensee is authorized to produce or bottle.
  • Persons under 21 years old may not serve distilled spirits at tastings.

However, craft distillers may sell up to 2.25 liters in any combination of prepackaged containers per day per consumer attending an instructional tasting on the craft distillers premises.

A licensed distilled spirits manufacturer or craft distiller may conduct distilled spirits tasting on their premises for an event sponsored by a nonprofit organization. A licensed distilled spirits manufacturer or craft distiller may not sell or solicit sales of distilled spirits at an event sponsored by a nonprofit organization.

For more information about the law regarding distilled spirits tastings, see Business and Professions Code (BPC) section 23363.1 and The Craft Distillers Act of 2015 (Assembly Bill 1295,Stats. 2015, Chapter 640).

For additional information about the sales and use tax application for tasting, see the Tastings at Distilleries and Self-Consumption topic below on this page.

Conversion of Liters to Wine Gallons

You are required to file California returns and reports for distilled spirits in "wine gallons." A wine gallon is the same as a regular gallon = 231 cubic inches or 128 ounces.

The Federal Alcohol and Tobacco Tax and Trade Bureau (TTB) authorizes the bottling of distilled spirits in standard metric sizes. To convert liters to wine gallons, multiply the quantity in liters by 0.264172, rounded to the nearest one-hundredth of a gallon, to determine the wine gallons.

Agricultural Topics

If you operate a farm that grows hops, barley, grains, potatoes, fruits, etc., or processes these products for distilleries, make sure you know about all of the tax-saving opportunities available to you. This section explains how sales and use tax applies to farm equipment and machinery, seed and plants, fertilizer, soil amendments, pesticides, and insecticides.

Partial Exemption for Farm Equipment and Machinery

In general, the sale of farm equipment and machinery is taxable; however, certain sales and purchases of farm equipment and machinery (including repair and replacement parts) are partially exempt from sales and use tax. As a farmer, you may be able to take advantage of this partial exemption.

Three requirements must be met for the partial exemption to apply. The item must be:

  1. Purchased by a qualified person,
  2. Used exclusively or primarily (depending on the type of item) in producing and harvesting agricultural products. Primarily means at least 50 percent of the time, and
  3. Defined as farm equipment and machinery, which includes, but is not limited to, any tool, machine, equipment, appliance, device, or apparatus used in the conduct of agricultural operations.

If any of these three requirements are not met, the partial exemption will not apply.

The partial exemption applies only to the state general fund portion of the sales tax, currently 5.00 percent. To calculate the tax rate for qualifying transactions, subtract 5.00 percent from the sales tax rate that would normally apply at the location where the sale is made. For example, if the current tax rate in your area is 9 percent, the tax rate for a qualifying transaction would be 4.00 percent.

Note: The rate for the state general and fiscal recovery funds portion of the sales tax is subject to change. The rates in this example are for demonstrative purposes only. You must use the rate in effect at the time of the sale. Current rates can be found on our California City & County Sales & Use Tax Rates webpage.

Examples of farming equipment and machinery that may qualify:

  • Planting and seeding equipment
  • Crop-spraying equipment
  • Harvesting equipment
  • Tractors
  • Balers
  • Trimming tools
  • Solar power systems, under certain circumstances
  • Irrigation equipment

If you lease rather than purchase farm equipment, you may still qualify for the partial tax exemption. For more information about leases, please see publication 46, Leasing Tangible Personal Property.

Mobile transportation equipment generally does not qualify for the partial exemption unless it is used exclusively in the conduct of agricultural operations and qualifies as an implement of husbandry under the California Vehicle Code. For a list of items that generally do not qualify for the farm equipment and machinery partial exemption, please see our Special Notice, Auto Part Retailers' Sales Generally Do Not Qualify for the Farm Equipment and Machinery Partial Exemption.

For more about this partial exemption and other exemptions available for farming, see our Tax Guide for the Agricultural Industry and look under the Farming Exemptions tab.

Diesel Fuel Used in Farming or Food Processing

Most sales and/or purchases of diesel fuel are taxable. However, a partial sales and use tax exemption exists for certain sales and purchases of diesel fuel used in farming activities or food processing. In addition, a farmer may purchase diesel fuel without paying the diesel fuel tax by issuing an exemption certificate to his/her vendor, or by purchasing dyed diesel fuel.

For information on when the partial exemption applies to the sale or purchase of diesel fuel used in farming activities or food processing, see our Tax Guide for the Agricultural Industry, look under the Farming Exemptions tab, and go to the Diesel Fuel Tax Exemption for Diesel Fuel used on a Farm for Farming Purposes topic.

Seed and Plants (rootlings, rootings and root stock)

Retail sales of seeds and landscaping plants are generally taxable.

However, sales and use tax does not apply to the sale of seeds and plants when:

  • The seeds or products grown from them will be used as food for human consumption.
  • The plants will produce food for human consumption, such as fruits, grains, berries, or nuts.

For more information, see Regulation 1588, Seeds, Plants and Fertilizer.

Fertilizer, Soil Amendments, Pesticides, and Insecticides

Sales and use tax does not apply to the sale of fertilizer to be applied to land or used in foliar application to plants, provided the land and plants are used to produce food products (grains, hops, berries).

The description of the term fertilizer includes all of the following:

  • Commercial fertilizers (as defined in section 14522 of the California Food and Agricultural Code)
  • Agricultural minerals (as defined in section 14512 of the California Food and Agricultural Code)
  • Cover crops that will be planted on the land and plowed underneath to fertilize that land
  • Carbon dioxide; and
  • Manure, which is considered to be:
    1. Waste from any domestic animal or fowl that is not artificially mixed with any material; or
    2. Domestic animal or fowl waste mixed only with materials used for preservation of the manure, or with materials used for bedding, sanitary, or feeding purposes for the animal or fowl.

Other retail sales of fertilizer and packaged soil amendments (as defined in Section 14552 of the California Food and Agricultural Code) and anxillary soils and plant substances (as defined in Section 14513 of the California Food and Agricultural Code) are taxable.

Sales of pesticides and insecticides are taxable; however, when those materials are mixed with fertilizer, the portion of the sales price representing the price of the fertilizer is not taxable if the fertilizer is used in a tax-exempt manner.

For more information, see Regulation 1588, Seeds, Plants and Fertilizer

Manufacturing and Research & Development Topics

Manufacturers and certain research and developers may qualify for a partial exemption from sales and use tax on certain manufacturing and research and development equipment purchases and leases.

The partial exemption rate is currently 3.9375 percent. The partial exemption provides that qualifying purchases and leases will be taxed at a rate of 3.3125 percent (7.25 percent current statewide tax rate – 3.9375 percent partial exemption) plus any applicable district taxes. You can lookup tax rates by city, county, or address on the California City & County Sales & Use Tax Rates webpage.

Manufacturing and Research & Development Partial Exemption

To be eligible for this partial exemption from sales and use tax, you must meet three conditions.

You must:

  • Be engaged in certain types of business, also known as a "qualified person,"
  • Purchase "qualified tangible personal property," and
  • Use the property in a qualified manner.

A "qualified person" generally means a person who is primarily engaged (50 percent or more of the time) in those lines of business described in the North American Industry Classification System (NAICS) Codes 3111 to 3399, inclusive, 541711, or 541712. These lines of business generally include manufacturing business activities, and research and development business activities. A qualified person may be primarily engaged either as a legal entity or as an establishment within a legal entity in a qualifying line of business.

If you operate a distillery, you may be considered a qualified person if you are primarily engaged in distilling spirits as described in NAICS code 312140.

Qualified tangible personal property generally includes:

  • Machinery and equipment, including component parts and contrivances such as belts, shafts, moving parts, and operating structures, used in manufacturing or research and development, and treated as having a useful life of one or more years for state income or franchise tax purposes.
  • Equipment or devices used or required to operate, control, regulate, or maintain the machinery, including, but not limited to, computers, data-processing equipment, and computer software, together with all repair and replacement parts, with a useful life of one or more years, whether purchased separately or in conjunction with a complete machine, and regardless of whether the machine or component parts are assembled by the qualified person or another party.
  • Tangible personal property used in pollution control that meets or exceeds standards established by California or any local or regional governmental agency within California at the time the qualified tangible personal property is purchased.
  • Special purpose buildings and foundations used as an integral part of the manufacturing, processing, refining, fabricating, or recycling process, or that constitute a research or storage facility used during those processes. Buildings used solely for warehousing purposes after completion of those processes are not included.

The tangible personal property must generally be used 50 percent or more of the time in qualifying manner. The following activities are generally considered qualifying uses of the property:

  • Primarily used in any stage of the manufacturing, processing, refining, fabricating, or recycling of tangible personal property;
  • Primarily used in research and development;
  • Primarily used to maintain or repair any qualified tangible personal property described above;
  • Property used by a construction contractor purchasing that property for use in the construction of special purpose buildings and foundations used as an integral part of the manufacturing, processing, refining, fabricating, or recycling process, or that constitute a research or storage facility used during those processes. Buildings used solely for warehousing purposes after completion of those processes are not included.

Examples of equipment that may qualify for a partial manufacturing exemption are distillation systems, bottling equipment, and fermentation tanks.

For more information on the partial manufacturing exemption, please visit our Manufacturing and Research & Development Exemption guide.

Oak Barrels

New, used, or re-coopered oak barrels and oak chips purchased for the purpose of incorporating flavoring elements derived from the oak into brandy may be purchased for resale by manufacturers of alcoholic beverages.

As the manufacturer of distilled spirits, you can provide a BOE-230, General Resale Certificate, to your vendor when purchasing oak barrels and/or oak chips.

Sales and Distribution Topics

If you sell, ship, distribute, import, or export distilled spirits, you need to know your sales and use tax and alcoholic beverage tax obligations. This section contains information that may be helpful to you.

Labeling

Sales and use tax generally does not apply to the sale of labels or name-plates when sold to persons who affix them to nonreturnable containers of property to be sold (spirits) or to returnable containers when a new label is affixed to the container each time it is refilled.

Examples are sales of labels to be affixed to fruit boxes, cans, bottles, and packing cases to growers, packers, bottlers, and others who place the contents in the containers.

Packaging Material

Sales and use tax does not apply to the sale of packaging materials when sold to persons who place the contents (spirits) in the containers and sell the contents together with the containers.

Examples of packaging materials are distilled spirits bottles, cans, wrapping materials, twines, bags, cardboard or plastic carriers, cartons, and pallets.

Tastings at Distilleries and Self-Consumption

If you charge a fee for distilled spirits tasting, you are considered the retailer of the distilled spirits and sales tax applies to the tasting charges. The alcoholic beverage tax is owed on all distilled spirits provided to customers at tasting events, even if there is no charge to the customers attending the event.

If you also sell food to pair with the distilled spirits, such as bread, crackers, cheeses, and other snacks, sales tax also applies to these sales. You may collect sales tax reimbursement from your customers on your distilled spirits and food sales as a separately stated charge, or you can include the tax in your distilled spirits or food charges. However, if tax is included in your charges, you must post a sign notifying your customers that the fee charged for distilled spirits tasting or food includes sales tax reimbursement. For more detailed information on sales tax reimbursement, see Regulation 1700, Reimbursement for Sales Tax.

If you do not charge a fee for distilled spirits tasting or food served to your customers, you are considered the consumer of the products used. You owe use tax on the cost of the taxable items that you purchased for resale and used to produce the distilled spirits that you let customers taste without charge. For example, if you are a distilled spirits manufacturer, you owe use tax on items purchased for resale such as bottles, labels, and certain chemicals incorporated into the distilled spirit. If you purchased distilled spirits for resale, you owe use tax measured by the cost of the distilled spirits that you give away or self-consume. Use tax does not apply to the purchase price of the grains or hops because they are food products the sales of which are exempt from tax. For more information regarding components of distilled spirits manufactured, please see the Ingredients tab.

Samples and Donations

Samples and donations of distilled spirits shall be reported as sales and are subject to California's alcoholic beverage tax.

Each transfer of samples, between licensees authorized to possess alcoholic beverages (manufacturers, manufacturers' agents, distilled spirits wholesalers and rectifiers),on which the California alcoholic beverages taxes have not been paid, should be on an ex-tax basis, and recorded on an invoice marked "Samples."

Distilled spirits picked up at the licensed premises of a distilled spirits rectifier or wholesaler by a representative of a manufacturer or manufacturer's agent for sampling purposes are subject to the alcoholic beverage tax and shall be reported as taxable sales by the rectifier or wholesaler. (Alcoholic Beverage Tax Regulation 2560, Treated as Sales)

For sales and use tax purposes, if you do not charge a fee for your samples, you are considered the consumer of the products used. You owe use tax on the cost of the taxable items that you purchased for resale and used to produce the distilled spirits that you let customers taste without charge. For example, if you are a distilled spirits manufacturer, you owe use tax on items purchased for resale such as bottles, labels, and certain chemicals incorporated into the distilled spirits. If you purchased distilled spirits for resale, you owe use tax measured by the cost of the distilled spirits that you give away or self-consume. Use tax does not apply to the purchase price of the grains or hops because they are food products the sales of which are exempt from tax. For more information regarding components of distilled spirits manufactured, please see the Ingredients tab.

Importing Alcoholic Beverages

As a distilled spirits importer, you must keep purchase invoices and a record of all shipments of distilled spirits received from a point outside of California.

You must document your records on BOE-242-A, Distilled Spirits Imported Into California. Importation of distilled spirits in California must be reported at the time of importation and not at the time of withdrawal from bond. Total amount reported on this report must be reported on the BOE-501-DS, Distilled Spirits Tax Return, on Line 4, under Statement II, Distilled Spirits Inventory Reconciliation.

Distilled spirits imported into California that are sold by the importer to a licensed manufacturer, wholesale, rectifier, or importer are not subject to the alcoholic beverage tax. However, imported distilled spirits sold by a wholesaler or rectifier to a California retailer are subject to the alcoholic beverage tax.

Personal Use

Adults who bring alcoholic beverages into California for personal or household use do not need an alcoholic beverage license; however, some restrictions do apply. For specific information on importing alcoholic beverages for personal use and the allowable amounts, visit the Department of Alcoholic Beverage Control's (ABC) website. There you will find information on the following topics:

See section 23661, Who may import, of the Business and Professions Code for more information.

If you purchase alcoholic beverages from outside California for personal use, you are generally required to report and pay use tax directly to the BOE. For information regarding California use tax, visit our California Use Tax Information webpage, and see Publication 61, Sales and Use Taxes: Exemptions and Exclusions.

Exporting Distilled Spirits

Distilled spirits sold for export and actually exported are exempt from the alcoholic beverage tax. Distilled spirits must be exported from California within 90 days from the date of sale.

In order for the exemption from the alcoholic beverage tax (Revenue and Taxation Code section 32211) to apply, one or more of the following conditions must be met:

  • The beverages are shipped to a point outside California by a carrier who is independent of the buyer and the seller, and the claim for tax exemption is supported by a copy of the shipping documents receipted by the carrier. "Carrier" means a person or firm regularly engaged in the business of transporting for compensation property owned by other persons.
  • The beverages are shipped to or delivered to a point outside California by any means, and the claim for tax exemption is supported by documentation signed by the purchaser and containing the certificate of the appropriate liquor control or tax authority of the state in which the beverages have been delivered, to the effect that receipt of the delivery of the beverages has been reported to such authority by the purchaser.

You must keep documentation, such as a bill of lading, to show that the distilled spirits were shipped out of California directly to your customer.

Sales Which Are Not Exports

Alcoholic beverages on which federal excise taxes have been paid, and which are sold to persons operating commercial fishing boats or private carrier freight vessels, for use as ships' stores outside of the State, upon the high seas, are not exports and are subject to the alcoholic beverage tax.

Records

You are required by law to keep business records to properly report and pay the applicable taxes. This section will explain what type of records you need to keep as well as how long you must keep them for both sales and use tax, and alcoholic beverage tax purposes.

Accurate record keeping will help you to keep track of your sales and purchases and assist you when preparing your required tax returns and reports. These records must be maintained for 4 (four) years, unless otherwise directed by the BOE. If you do not maintain records, it may be considered evidence of negligence or intent to evade the tax and may result in penalties.

Examples of records you must keep include:

  • Sales Invoices
  • Sales Journals
  • Resale Certificates
  • Shipping Documents
  • Purchase Invoices
  • Cash Register Tapes
  • Bank Records
  • Purchase Orders
  • Purchase Journals
  • Tax Returns

Invoices

Every sale or delivery of distilled spirits or brandy from one licensee to another licensee must be recorded on a sales invoice, whether or not consideration is involved.

Each invoice covering the sale or purchase of alcoholic beverages:

  • Must not be commingled with invoices covering commodities other than alcoholic beverages;
  • Must be marked or stamped "Sold for export" if sold for export;
  • Must be marked or stamped "No State tax–not for beverage use" if sold for use in trades, professions, or industries, and not for beverage use;
  • Sales by a licensee to another licensee must show the number of wine gallons sold, and
  • Must show all of the following:
    • The name and address of the purchaser;
    • Date of sale or purchase and invoice number;
    • Kind, quantity, size, and capacity of packages of alcoholic beverage sold or purchased;
    • The cost to the purchaser together with container charges and any discount which at any time is to be given on or from the price as shown on the invoice; and
    • The place from which delivery of the alcoholic beverages was made unless delivery was made from the premises of the licensee or from a public warehouse located in the same county.

In addition to the general requirements described above, the following records must be kept:

Distilled Spirits Manufacturers, Manufacturer's Agents, Brandy Manufacturers, and Rectifiers
  • All distilled spirits produced, manufactured cut, blended, rectified, bottled, packaged or otherwise acquired in California.
  • All distilled spirits received from licensee's own bottling or packaging departments shall be recorded on BOE-240-A, Distilled Spirits Received from Own Bottling Department.
Importers of Distilled Spirits and Brandy
  • All distilled spirits and brandy imported in California shall be recorded on BOE-242-A, Distilled Spirits Imported Into California.
  • All distilled spirits sold or delivered to other California distilled spirits licensees in California, all transfers of distilled spirits to licensee's own branches in California, and all returns of distilled spirits to original vendors in California shall be recorded on BOE-243-B, Claim for Distilled Spirits Excise Tax Exemption on Sale or Delivery to Other Licensees in California.
  • All distilled spirits sold for export or exported from California and all sales of distilled spirits to common carriers must be recorded in BOE-244-B, Claim for Excise Tax Exemption on Distilled Spirits Exported or Sold to Common Carriers and Armed Forces Instrumentalities.

Every sale or delivery of distilled spirits from one licensee to another licensee must be recorded on a sales invoice, whether or not consideration is involved.

For more detailed information on books and records, please see our Keeping Records webpage.

Inventories

If you are a distilled spirits taxpayer you must provide a statement of your gallonage of finished package distilled spirits on hand at the end of the month.

You must report it on the BOE-501-DS, Distilled Spirits Tax Return. In general, at least two of the statements of gallonage shall be prepared from semi-annual physical inventories.

For more information, see Regulation 2530, Inventories.

Losses and Allowances

If you are a licensed business and incur any of the following described losses, the BOE will refund you an amount equal to the state alcoholic beverage taxes included in the sales price of beverages.

Losses Resulting from Disaster, Vandalism, Malicious Mischief, or Insurrection

To obtain a refund from the BOE for the alcoholic beverage taxes, all of the following conditions below must be met.

  • The beverages are lost, rendered unmarketable, or condemned by a duly authorized official by reason of fire, flood, casualty, or other disaster, or by reason of breakage, destruction, or other damage resulting from vandalism, malicious mischief, or insurrection.
  • The beverages were held and intended for sale at the time of the disaster or other damage.
  • The disaster or damage occurred in California.
  • The licensee has not, and will not, be compensated by insurance, or otherwise, for the loss in the amount of the tax included in the purchase price paid for the beverages.
  • The amount to be refunded with respect to a single disaster or other loss is two hundred fifty dollars ($250) or more.
  • A claim for refund is filed with the BOE within six months after the date on which the beverages were lost, rendered unmarketable, or condemned by a duly authorized official.

The BOE will not pay interest on the amount of alcoholic beverage taxes refunded. Losses resulting from theft do not qualify for a refund of the alcoholic beverage tax (see Regulation 2553, Losses Resulting from Disaster, Vandalism, Malicious Mischief, or Insurrection).

Losses resulting from theft do not qualify for a refund of the sales tax because the products were not sold and therefore, sales tax was not collected.

Unintentional Destruction of Distilled Spirits

Unintentional destruction means destruction of distilled spirits by: fire, earthquake, floods, breakage in transit, accident, or by any other cause when the exact quantity destroyed is known.

Claims for loss by unintentional destruction must be filed with the BOE in Sacramento immediately following the close of business on the last day of the month in which the loss is discovered. The claim must state under oath of the licensee that the distilled spirits were so damaged that they could not be used for any purpose. Proof of loss satisfactory to the BOE in the form of paid insurance or carrier claims must be retained on the taxpayer's premises for verification.

For more information, see Regulation 2550, Destruction and Unaccounted For Losses of Distilled Spirits.

Unaccounted For Losses of Distilled Spirits

Unaccounted for losses shall include all other losses disclosed by physical inventory due to pilferage, handling, etc.

The allowable tolerance for unaccounted for losses of distilled spirits acquired by any distilled spirits taxpayer shall not exceed one-tenth of one percent of the total sales of the distilled spirits. In the case of a distilled spirits taxpayer who holds licenses for two or more premises, the tolerance allowed by this rule shall be computed and applied separately to the transactions for each premises, unless the BOE has granted the taxpayer permission to file a consolidated tax return.

For more information, see Regulation 2550, Destruction and Unaccounted For Losses of Distilled Spirits.

Powdered Alcohol

Effective January 1, 2017, it is illegal to possess, purchase, sell, offer to sell, distribute, manufacture, or use powdered alcohol.

Starting January 1, 2017, the California Department of Alcoholic Beverage Control is required to revoke or suspend your alcoholic beverage license if you offer for sale, manufacture, or distribute powdered alcohol. Violators will be guilty of an infraction, punishable by a fine of not more than five hundred dollars ($500).

Resources

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:

Tax Guides

Laws and Regulations

NAICS – North American Industry Classification System

The Census Bureau is the official US Government Authority that manages the NAICS Coding System. Go to the 2012 NAICS search tool to determine your NAICS code.

Returns, Reports, and Forms

  • BOE-217, Common Carrier's Report of Delivery
  • BOE-240-A, Distilled Spirits Received from Own Bottling Department
  • BOE-241-A, Distilled Spirits Purchased or Received From Other Licensees in California
  • BOE-242-A, Distilled Spirits Imported Into California
  • BOE-243-B, Claim for Distilled Spirits Excise Tax Exemption on Sale or Delivery to Other Licensees in California
  • BOE-244-B, Claim for Excise Tax Exemption on Distilled Spirits Exported or Sold to Common Carriers and Armed Forces Instrumentalities
  • BOE-501-DC, Common Carriers Tax Return
  • BOE-501-DS, Distilled Spirits Tax Return
  • BOE-1096, Customs Broker's Report of Transactions

Partial Exemption Certificates

  • BOE-230-M Partial Exemption Certificate for Manufacturing, Research and Development Equipment
  • BOE-230-G Partial Exemption Certificate for Qualified Sales and Purchases of Diesel and Farm Equipment and Machinery
  • BOE-608 Certificate of Farming Use (to support your diesel fuel vendor's claim for a credit, payment, or refund under section 60502 of the Revenue and Taxation Code)
  • BOE-230-N Exemption Certificate for Qualified Sales and Purchases of Liquefied Petroleum Gas

Publications

Other Helpful Resources

  • BOE Online Services – Learn about the online services the BOE offers, including online registration for all permits, licenses, and accounts we administer.
  • Open BOE Data Portal – Provides you access to the BOE's publicly available data in easy-to-use formats.
  • Verify a Permit, License, or Account – You can use this to verify a seller's permit, Cigarette and Tobacco product retailer license, eWaste account, or Underground Storage Tank Maintenance Fee account.
  • Sign Up for BOE 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.
  • Find Your Tax Rate – You can look up the current sales and use tax rate for a specific address.
  • Tax and Fee Rates – You can look up current and past alcoholic beverage tax rates, as well as rates for other special taxes and fees administered by the BOE.
  • Special Notices – BOE special notices are issued whenever there is a change in laws, tax rates, or BOE procedures.
  • Get It in Writing! – Our tax and fee laws can be complex, and you are encouraged to put your tax questions in writing.
  • Contact Us – A listing of BOE contacts for your questions and concerns.
  • BOE Field Offices – A comprehensive listing of all BOE field offices and contact information.
  • Taxpayers' Rights Advocate (TRA) – The TRA Office helps taxpayers when they are unable to resolve a matter through normal channels (for example by speaking to a supervisor), when they want information regarding procedures relating to a particular set of circumstances, or when there are apparent rights violations.
  • Department of Alcoholic Beverage Control (ABC) – Provides helpful information for businesses requiring ABC licenses.
  • Alcohol and Tobacco Tax and Trade Bureau (TTB) – Provides information and documents for distilled spirits producers, importers, exporters, and wholesalers regarding alcohol permitting, labeling, and marketing requirements.