Pennsylvania to tax craft brews starting July 2019
Update: 10.02.2019: The July 1, 2019, effective date was delayed to October 1, 2019, and the tax has changed. According to the Pennsylvania Department of Revenue, "Starting October 1, 2019, Act 13 of 2019 requires manufacturers of malt or brewed beverages to pay use tax on all malt or brewed beverages sold directly to consumers. The use tax base is 25 percent of the retail purchase price of the malt or brewed beverages. This includes purchases made for on-premises consumption and to-go sales."
Manufacturers of malt and brewed beverages in Pennsylvania will be required to charge tax on their brews starting July 1, 2019. A manufacturer of malt or brewed beverages is any person licensed by the Pennsylvania Liquor Control Board (PLCB) to manufacture, transport, and sell malt or brewed beverages.
There’s a lot of confusion around this policy change. It took the Pennsylvania Department of Revenue (DOR) six pages to explain it, and when they get to the end, readers may be more confused than when they started.
According to the DOR tax bulletin [since rescinded], Pennsylvania’s 6 percent sales tax (plus applicable local sales taxes in Allegheny and Philadelphia counties) has applied to sales of malt or brewed beverages since 1971. However, the tax isn’t collected by persons holding a retail dispenser or retail liquor license because the Tax Reform Code (TRC) “excludes from the definition of ‘sale at retail’ the sale of malt or brewed beverages by a person holding a retail dispenser or retail liquor license.”
In other words, retailers don’t collect retail sales tax on their sales of malt or brewed beverages.
Therefore, the bulletin goes on to explain, “a manufacturer [of brewed or malt beverages] is required to collect sales tax on its sales of malt or brewed beverages to any person for any purpose.” The only exception is “sales to importing distributors or distributors.”
So, the tax manufacturers will start collecting on July 1 isn’t a new tax. But it feels like a new tax, because manufacturers of malt or brewed beverages don’t collect it now.
In Pennsylvania, the type of tax a business needs to collect depends on the type of license it has. Manufacturers of malt and brewed beverages must hold a G license (brewery). On top of the G license, they may also obtain a GP license (brew pub), or a GS license (brewery storage). Other sellers of beer to consumers, such as bars, hotels, and restaurants, have some type of retail liquor license (there are numerous options).
Brewers are up in arms over this new/not new tax because while they’ll be required to tax the direct sale of a pint of beer to customers, that same pint sold in a restaurant won’t be taxed. Bars, hotels, and restaurants do pay the 6 percent state tax (plus applicable local taxes) on the wholesale price of beer purchased from distributors and manufacturers, but they don’t charge consumers retail sales tax.
The Pennsylvania Department of Revenue explains: “In essence, manufacturers can now act as a traditional retailer when selling their products to the public for on-premises consumption, and distributors when selling their products to the public for off-premises consumption.”
Application of the tax
As of July 1, 2019, malt and brewed beverage manufacturers selling their own products under a G, GP, or GS license must charge sales tax on sales to:
- Limited wineries
- Other breweries/manufacturers (for them to sell to the public)
- Retail licensees
- Special occasion permit holders
- Distilleries and limited distilleries
- The public for on-premises or off-premises consumption
The DOR allows manufacturers to deal with sales tax in one of two ways: They can include the tax in the advertised sale price, or they can separately state the tax on each sale.
Including sales tax in the purchase price
Manufacturers must charge tax on each sale of their own products. However, they can include the tax in the purchase price. According to the DOR, “This way, retail sales to the public will [be] treated in a similar manner, whether made by a manufacturer under a manufacturing license or a retail license.” In other words, consumers won’t see a separate line that says “SALES TAX” on their receipts.
If tax is included in the purchase price, the manufacturer must post a sign where its prices are displayed, explaining that the displayed price includes sales tax.
If a manufacturer purchases malt or brewed beverages (can we just say beer?) from other manufacturers to sell to the public for consumption on-premises, it should pay sales tax on that purchase. The DOR won’t “require a manufacturer to collect sales tax on sales of other manufacturers’ products to the public (similar to how a bar or restaurant operates).”
Separately stating sales tax
Manufacturers selling their own beverages under a G, GP, or GS license may choose to separately state the tax on the invoice. In this case, they must collect tax whether the sale is for on-premises or off-premises consumption, and whether selling their own beverages or the beverages of other manufacturers purchased for resale.
Manufacturers that purchase beverages for resale should buy those beverages tax-exempt by providing the seller with a resale exemption certificate. If a manufacturer doesn’t provide an exemption certificate to the other manufacturer and pays sales tax on goods it later resells, it can claim a credit for the tax paid on its sales tax return.
Special rule for manufacturers selling under a retail license
In the event a manufacturer of malt or brewed beverages sells its products under a retail license instead of a manufacturing license (G, GP, or GS), it should not charge sales tax on retail sales to end consumers.
Here’s where it gets a bit tricky. The DOR explains that it can require a taxpayer “to determine a constructive purchase price upon which sales tax must be paid.” What’s a constructive purchase price? According to the DOR, the actual retail price of the malt or brewed beverages sold to consumers best reflects the constructive purchase price.
If not, you can find more details about taxing sales by manufactures of malt or brewed beverages in Pennsylvania in Tax Bulletin 2018-02. You may also want to learn how automating sales tax can simplify sales tax compliance for all businesses, including Pennsylvania breweries.
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