Was Goetz Pale Near Beer exempt because it was not federally taxed or registered in California as an alcoholic beverage?

Plain-English summary

The container said Goetz Pale Near Beer was not taxable under Internal Revenue Code section 5051 and was brewed with grain, malt, hops, yeast, and water.

Board counsel explained that the federal statement only meant the product was not federally taxed as an alcoholic beverage. California's Alcoholic Beverage Control agency also had not registered it as an alcoholic beverage, so counsel inferred that its alcohol was below the legal threshold.

That did not create a California food exemption. From the name and ingredients, counsel concluded that the product contained some alcohol and treated it as malt liquor, comparing it to taxable hard cider.

Counsel also assumed, unless contrary information was provided, that the product was naturally carbonated. Section 6359 excluded both malt liquor and carbonated beverages from exempt food, so the sales were taxable on either stated ground.

Common questions

Did the federal “nontaxable” statement control California sales tax?

No. It only addressed federal alcoholic-beverage tax under the cited code section.

Was the product legally an alcoholic beverage in California?

It was not registered as one, and counsel inferred its alcohol was below the applicable threshold.

Was carbonation confirmed?

No. Counsel assumed natural carbonation from the product facts, expressly subject to contrary information.

Citations and references

• Internal Revenue Code section 5051 (as discussed)
• California Revenue and Taxation Code section 6359 (as cited)
• California Business Taxes Law Guide Annotation 245.1440 (August 22, 1955) — historical hard-apple-cider guidance cited
• Inglewood Auditing's March 25, 1975 memorandum to D. J. Hennessy asking about Goetz Pale Near Beer — referenced; not reproduced in the official PDF
• Photocopies of the Goetz Pale product container — statements and ingredients described; photocopies not reproduced in the official PDF
• Redacted comparison product and its memorandum dated only “--/--/----” — comparison stated; product identity, memorandum date, and memorandum copy withheld from the official PDF
• Department of Alcoholic Beverage Control registration check — result stated; underlying inquiry, response, database record, registration criteria, and contact details not reproduced in the official PDF
• Goetz Pale ingredients, alcohol content, and carbonation — container facts stated, but low alcohol, some alcohol, and natural carbonation inferred without formula, laboratory results, carbonation tests, bottle, labels, samples, production records, invoices, or sales records reproduced in the official PDF
• Possible contrary product information, sale, audit, assessment, refund claim, appeal, registration change, or other agency action — 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/245-0485.pdf

Original ruling text

State of California

Board of Equalization

Memorandum
To:

Inglewood – Auditing (RBP)

From:

Headquarters – Legal Counsel (HLC)

Subject:

Goetz Pale “Near Beer”

245.0485
Date:

April 29, 1975

This is in reply to your memorandum addressed to Mr. D. J. Hennessy dated March 25, 1975, in which you inquire whether sales of the subject product are subject to tax. The photocopies of the product container that you furnished indicate that the product is “non taxable under Section 5051 I.R.C.” and that the product is brewed with grain, malt, hops, yeast, and water. You compare this product with [X] which was the subject of a memorandum dated --/--/----. The statement “non taxable under Section 5051 I.R.C.” merely indicates that Goetz Pale “Near Beer” is not federally taxed as an alcoholic beverage. Checking with the Department of Alcoholic Beverage Control (ABC) we find that this product is not registered in California as an alcoholic beverage. We draw the conclusion that the alcohol content of the product is below that necessary to be legally defined as an alcoholic beverage for ABC purposes, however from the ingredients and name we would conclude that the product does contain some alcohol and that it is naturally carbonated. Section 6359 of the Revenue and Taxation Code excludes from the definition of exempt food products spirituous and malt liquors and carbonated beverages. Even though we have concluded that the alcohol content is below that required under ABC rules for an alcoholic beverage, we would consider that it is a spirituous, malt liquor to the same extent as hard apple cider, which is not exempt as a spirituous liquor. (See B.T.L.G. Anno. 245.1440, August 22, 1955). We would also, barring information to the contrary, assume that the product is carbonated and thus not exempt for that reason as well.

HLC:gj