On February 23rd, the State Board of Equalization announced a new regulation to clarify the definition of wine products and the tax applied to wine-based products that contain distilled alcohol. The proposed regulation follows the same approach the BOE used to classify flavored malt beverages in 2008. In essence any wine-based product that contains substantial amounts of distilled alcohol, from sources other than the agricultural product from which the wine is produced, will be taxed as a distilled spirit, not as a wine. Initially the industry was split on how to define wine and which products should be taxed at the higher rate. 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. In general, the excise tax on distilled spirits is collected from retailers by distilled spirits wholesalers, at the time of sale to the retailer.

The Board, in their internal rule-making process, allowed staff to talk with industry representatives. As a result, the language of the regulation focuses on the type and amount of distilled alcohol added to the wine, a clarification that industry representatives say will be helpful to the wine industry.

The next step is a 45 day comment period which will lead to a public hearing in front of the Board in May. The BOE will distribute notices to all alcoholic beverage tax program registrants prior to the regulation’s effective date. For more information on this and other taxes, visit www.taxes.ca.gov.


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