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February 25, 2011 > Wine regulation

Wine regulation

Proposed regulation will clarify taxation of wine-based products

Submitted By Anita Gore

The California Board of Equalization (BOE) has approved the Alcoholic Beverage Tax Regulation 2558.1 and authorized its publication, beginning the formal rule-making process. The next step is a 45-day comment period with a public hearing before the Board in May 2011.

The proposed regulation, approved by the BOE on February 23, will take effect on January 1, 2012, upon approval by the Office of Administrative Law, and provide clear direction to the wine industry on the appropriate classification of a wine-based product as a distilled spirit for state tax purposes. This follows the same approach as the Distilled Spirits Regulations that took effect October 1, 2008, to primarily address the proper taxation of Flavored Malt Beverages (FMBs).

The additional proposed regulation clarifies the definition of wine, specifying that any wine-based product that contains substantial amounts of distilled alcohol from sources other than the agricultural product of which the wine is made will be taxed as a distilled spirit, not as a wine.

Notices will be sent by the BOE to all alcoholic beverage tax program registrants, notifying them of the proposed regulation.

"This regulation will clarify the tax rule to apply it equally to both wine-based and beer-based products," said Betty T. Yee, First District Member of the BOE. "Because most wineries do not use non-wine-based, distilled spirit additives as addressed by the original rule, standard wine products will be unaffected."

At the November 17, 2010 Board meeting, the Board authorized an internal rule-making process that allowed staff to begin talking to interested parties about the proposed regulations. On December 17, 2010, there was a stakeholders' meeting with BOE staff and industry representatives to discuss the initial draft of the regulations.

Wine and Beer products are taxed at $0.20 per gallon, distilled spirits (100 proof or less) at $3.30 per gallon and distilled spirits (over 100 proof) are taxed at $6.60 per gallon. 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.

For more information, visit www.boe.ca.gov and www.taxes.ca.gov

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