Were packaged malt, hops, sugar, yeast, gelatin, and Irish moss exempt food ingredients even though customers would use them to make taxable beer?

Plain-English summary

A Brew Your Own Beer, Pale Ale kit contained malt extract, dry malt, Irish moss, gelatin, yeast, hops, and sugar.

Malt, malt extract, cereal grains such as hops, gelatin, and sugar were food products under the authorities cited. Yeast also qualified because it was not sold as a dietary supplement.

Irish moss, or carrageen, qualified if sold as an edible ingredient rather than for medicine or another nonedible purpose and if it was not sold as a dietary supplement.

The fact that the ingredients would become beer did not change their packaged classification. Although beer itself was not a food product for this sales-tax rule, the ingredients remained food products sold for human consumption.

If a kit also contained nonfood items such as bottles or caps and those items represented more than 10 percent of package value excluding the container, the seller had to segregate the nonfood value for tax.

Common questions

Did making taxable beer make the ingredient package taxable?

No. The ingredients were classified in the form sold, before the customer brewed them into beer.

When did yeast qualify as food?

When it was not sold as a dietary supplement.

When did Irish moss qualify?

When sold as an edible ingredient rather than for medicine or another nonedible purpose and not as a dietary supplement.

Citations and references

• California Revenue and Taxation Code sections 6007, 6051, 6201, 6359, and 6401 (as cited)
• California Sales and Use Tax Regulation 1602(a)(1), (a)(2), (b), and (c) (as cited)
• Business Taxes Law Guide Annotation 245.1360 (July 24, 1952) — historical yeast guidance cited
• Business Taxes Law Guide Annotation 245.0698 (May 8, 1991) — historical packaged-form guidance cited
• Webster's New World Dictionary, third college edition (1991), page 214 — Irish moss definition quoted in the official letter
• Redacted taxpayer's June 19, 1995 inquiry about sales of its “Brew Your Own Beer, Pale Ale” product — request and listed ingredients described; inquiry not reproduced in the official PDF
• Brew Your Own Beer package and possible bottles or bottling caps — ingredients, intended brewing use, and allocation rule described; underlying formulation, labels, package, literature, invoices, kit-value evidence, and sales records not reproduced in the official PDF
• Regulation 1602 enclosure — stated as included for the taxpayer's convenience but not reproduced in the official PDF
• Possible later correspondence, product sale, audit, assessment, refund claim, appeal, or agency action after the letter — no follow-up or final outcome supplied in the official PDF

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/245-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/245-0089.pdf

Original ruling text

245.0089

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
Telephone: (916) 327-2291
FAX: (916) 323-3387

JOHAN KLEHS
First District, Hayward
DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles
KATHLEEN CONNELL
Controller, Sacramento

August 10, 1995

────────
BURTON W. OLIVER
Executive Director

Mr. [G]
[F]
XXXX --- ---.
--- ---, CA XXXXX
Re:

Sales of “Brew Your Own Beer” Packages
S- -- XX-XXXXXX

Dear Mr. [G]:
This is in response to your letter dated June 19, 1995, in which you inquire about the tax consequences of sales of your “home brew” product. Your product, marketed as “Brew your own Beer, Pale Ale” contains the following ingredients: malt extract, dry malt, Irish moss, gelatin, yeast, hops and sugar. You ask whether the sales of your product are nontaxable. Retail sales of tangible personal property in California are subject to sales tax, measured by gross receipts, unless specifically exempt by statute. (Rev. & Tax. Code § 6051.) A retail sale is a sale for any purpose other than resale in the regular course of business. (Rev. & Tax. Code § 6007.) When sales tax does not apply, use tax applies to the use of property purchased from a retailer for use in California, unless the use is specifically exempt from tax. (Rev. & Tax. Code §§ 6201, 6401.) Section 6359 provides an exemption from sales and use taxes for sales of food products for human consumption under certain circumstances. Subdivision (b) contains a list of products which, either singly or in combination, are considered “food products.” Subdivision (a)(1) of Regulation 1602, which explains section 6359, specifically lists cereal grains, malts and malt extracts, gelatin, and sugar products as food products. Accordingly, the malt extract, dry malt, gelatin and hops, a cereal grain, qualify as food products for human consumption, sales of which are generally exempt from tax.

Mr. [G]

-2-

August 10, 1995
245.0089

The two remaining ingredients in question are the yeast and the Irish moss. Business Taxes Law Guide Annotation 245.1360 (7/24/52) explains that so long as yeast is not sold as a dietary supplement, it will be regarded as a food product for human consumption, sales of which are exempt. Since the yeast included in your product is not sold as a dietary supplement, it, too, will be considered a food product for human consumption. Irish moss, also known as carrageen, is defined in Webster’s New World Dictionary (3rd college ed. 1991) at page 214, as “a purplish edible red algae” which is “used in jellies, lotions, medicine, etc.” If the Irish moss is not sold for medicinal or another non edible purpose, its sales will qualify as a sale of a food product for human consumption provided it is not sold as a dietary supplement. Although the finished product, home brewed beer, that results from the combination of these food products for human consumption, is not considered a food product for sales tax purposes (Reg. 1602(a)(2)), this does not alter the fact that these ingredients, in their packaged form, constitute food products sold for human consumption. (Reg. 1602(c); BTLG Annot. 245.0698 (5/8/91).) However, if the sales of these home brew packages include non-food items, such as bottles or bottling caps, and more than 10% of the value of the package, exclusive of the container, represents non-food products, then a segregation must be made and sales tax will be measured by the value of the non-food items. (Reg. 1602(b).) I have included a copy of Regulation 1602 for your convenience. If you have any further questions, please feel free to write again. Sincerely,

Patricia Hart Jorgensen
Senior Staff Counsel

PHJ:cl
Enclosure
cc:

--- District Administrator