The real reason we like Kombucha – Wacky Tax Wednesday

I first knew I needed to try kombucha around 2011, after seeing “Whole Foods Parking Lot” and hearing the line, “I’ve been on edge ever since they took kombucha off the shelf.” I knew Whole Foods well, having lived just up the street from one in Seattle, and I frequently shopped at food co-ops and natural grocery stores. Why, then, did I not know kombucha? Was I not hip enough? Too suspicious of smelly, viscous beverages? And why did Whole Foods take it off the shelf?

Shortly thereafter, while on a trip to the foggy coast of Washington, my husband and I purchased our first bottles of kombucha at Sequim’s Sunny Farms Country Store. We passed them around the car so the kids could sample them (they’re big fans of “Whole Foods Parking Lot”). The verdict? It may be good for us, but it sure didn’t taste good. In fact, it made us all slightly queasy. Was it supposed to contain mucous?

Since then we’ve all grown to love kombucha (although it still sometimes causes queasiness). We like some more than others and are particularly fond of Iggy’s, which is brewed on the island we call home. I may soon even embark on brewing some myself, thanks to the generosity of a colleague willing to share some of her SCOBY.

But I’ve often wondered why kombucha seems to be thriving now, when it’s been around for millennia. It’s fallen in and out of fashion over the centuries — hailed as a cure-all and magical elixir, then cursed as a causer of belly aches. Could its alcohol content be responsible for its sudden surge in popularity?

Yup, kombucha contains small amounts of alcohol, though most people would have to drink an alarming amount to catch a buzz. The alcohol content inspired the federal government to intervene: “Under federal law, if the alcohol content of kombucha is 0.5% or more alcohol by volume, at any time during production, when bottled, or at any time after bottling, the kombucha is an alcohol beverage and is subject to TBB (Alcohol and Tobacco Tax and Trade Bureau) regulations.” Kombucha was taken off the shelves in Whole Foods when this issue first arose in 2010 (the cause of distress in “Whole Foods Parking Lot”), because alcohol content affects how and where a beverage can be sold. More to the point of this blog, it also impacts taxability.

Taxing kombucha

The California State Board of Equalization (BOE), which may employ people less hip or more suspicious than I, is finally addressing the taxability of  kombucha. Its 2016 version of the tax publication Liquor Stores contains a “brief summary of typical sales for liquor stores” and includes examples of taxable and nontaxable sales. “Taxable sales” now includes “Kombucha tea (if alcohol content is 0.5 percent or greater by volume).” “Nontaxable sales” includes “Kombucha tea (if less than 0.5 percent alcohol by volume and naturally effervescent).”

The BOE isn’t the only state tax authority to delve into kombucha. In 2015, the Connecticut Department of Revenue Services issued a tax ruling about the bubbly brew. It determined, “Sales of kombucha are subject to sales and use taxes because kombucha is a carbonated beverage that is excluded from the exemption for food products for human consumption set forth in Conn. Gen. Stat. § 12-412(13).” The ruling doesn’t reference the alcohol content of kombucha, but under Connecticut law, “spirituous, malt or vinous liquors” also don’t qualify for the food products exemption.

The Wisconsin Department of Revenue was asked to provide guidance on the taxability of kombucha in 2014. Although sales of food and food beverages aren’t generally taxable, it explained:

“Sales of Kombucha beverages that meet the definition of "soft drink" under sec. 77.51(17w), Wis. Stats. (2011-12), are subject to Wisconsin sales tax. "Soft drink" includes beverages that contain less than 0.5% of alcohol and that contain natural or artificial sweeteners (e.g., sugar).... Since sugar is remaining at the end of the fermentation cycle, these Kombucha beverages contain natural or artificial sweeteners.”

It then added, “Sales of Kombucha beverages that contain 0.5% or more of alcohol are also subject to Wisconsin sales tax.”

Yet when Vermont instituted tax on soft drinks in July 2015, the Vermont Department of Taxation provided some conflicting information. It lists “Kombucha with no added sweeteners” as an example of a beverage that isn’t taxable, but also explains that “nonalcoholic beer is subject to sales tax because it contains sweeteners.” Kombucha isn’t nonalcoholic beer, but it can be made with natural sweeteners and contain trace amounts of alcohol like nonalcoholic beer. I predict the Department of Taxation hasn’t heard the last of kombucha.

Kombucha. Try it if you haven’t, and let us know how it’s taxed where you shop.

Want more interesting sales tax stories? Sign up for Avalara’s free, monthly newsletter.

photo credit: JessNityaJess I can't get enough... via photopin (license)