Were dry and liquid malt extracts exempt food products when brewing-supply retailers sold them for making beer?

Plain-English summary

California tax counsel concluded that dry and liquid malt extracts were food products even when sold by beer-making-supply retailers for use in beer or other carbonated or alcoholic malt beverages.

Regulation 1602(a)(1) specifically listed malt extract as a food product. Regulation 1602(c) also said an item within the food-products definition remained a food product when purchased for incorporation into an item that was not itself defined as food.

Board staff had previously read the predecessor rule more narrowly, treating an item sold by a non-food retailer for a non-food purpose as outside the exemption. The opinion rejected that interpretation. It said the retailer's nature was not the test and interpreted “non-food purposes” to mean purposes other than human consumption.

Because beer and the other described malt beverages were for human consumption, the brewing-store setting and alcoholic end product did not strip the malt extract of its food-product status. Counsel said the Board was revising the applicable authorities and had contacted staff to correct the prior opinion.

Common questions

Did the seller have to be a grocery or other food retailer?

No. The source expressly said the nature of the retailer was not the standard.

Did making an alcoholic beverage make the malt extract taxable?

No. Counsel treated the malt extract as food when used to make beer or other alcoholic malt beverages for human consumption.

What did “non-food purposes” mean in this opinion?

It meant purposes not involving human consumption—not merely sale by a non-food retailer or incorporation into an alcoholic beverage.

Citations and references

• California Revenue and Taxation Code section 7056(a) (as cited for confidential legal opinions)
• California Sales and Use Tax Regulation 1602(a)(1) and 1602(c) (as cited)
• Former California Sales and Use Tax Ruling 52(c) — described as Regulation 1602(c)'s identically worded predecessor
• II Business Taxes Law Guide, Annotation 245.0780, and prior Board staff opinion letters — cited for the interpretation rejected as too narrow; the source describes annotations as excerpts that guide staff positions
• Redacted attorney's March 25, 1991 request and attached correspondence with Board staff, especially the attorney's January 31 letter to Jean A. McNeill of Return Review — described; none reproduced in the official PDF
• Jean A. McNeill's letter of a redacted date to a redacted person and its underlying confidential legal opinions — referenced; letter and opinions not reproduced in the official PDF
• Board review of the regulation, previous rulings, and opinions concerning malt extract — described; authorities other than those named above not identified or reproduced in the official PDF
• Dry and liquid malt extracts sold by beer-making-supply retailers for beer or other carbonated or alcoholic malt beverages — products and use described; formulas, ingredient specifications, labels, samples, invoices, customer records, and brewing records not reproduced in the official PDF
• Revision of applicable authorities and contact with Jean A. McNeill to correct the previous opinion — actions stated; revised authorities, correction, communication, and implementation record not reproduced in the official PDF
• Copy to Return Review Supervisor O. A. McCarty and possible later sale, audit, assessment, refund claim, appeal, or other agency action — copy notation present; no copy, 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/245-0698.pdf

Original ruling text

245.0698

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-3828

May 8, 1991

Mr. [C]
Attorney at Law
XX --- ----- ---, California XXXXX
RE:

Malt Extract
S- -- XX-XXXXXX

Dear Mr. [C]:
You letter of March 25, 1991, to the Legal Division has been assigned to me for a response. You are requesting an opinion regarding the applicability of sales and use tax to sales of Dry and Liquid Malt Extract. Attached to your letter are copies of several pieces of correspondence you have had with various members of the Board staff, particularly a letter dated January 31, 1991, which you sent to Ms. Jean A. McNeill, Return Review. That letter indicates that you represent the [H] and that you are specifically interested in the case of Mr. [Name]. Unfortunately, we are prohibited from supplying you with a copy of the legal opinions underlying Ms. McNeill’s letter of [date], to Mr. [Name]. (Rev. & Tax. Code § 7056(a).) OPINION We have recently thoroughly reviewed the regulation as well as previous rulings and opinions on this matter. We have, we regret to say, determined that there is some confusion in the authorities regarding Malt Extract. Regulation 1602(a)(1) lists malt extract as a food product. Regulation 1602(c) provides that an item which is included in the term “food products” remains a food product, even if it is purchased to be incorporated into an item which is defined as not being a food product. (Sales and Use Tax Regulations are Board promulgations which have the force and effect of law.)

Mr. [C]

-2-

May 8, 1991
245.0698

Previously, the Board staff had adopted an interpretation of Ruling 52(c), the predecessor to Regulation 1602(c), containing identical language, that items sold by retailers other than food retailers for non-food purposes were not covered by that exemption. (II Bus. Tax. L. Guide, Annot. 245.0780; Annotations are excerpts from previous Board staff opinion letters and serve as a guide to staff positions.) After review, we have determined that that interpretation is too narrow. We are of the belief that the nature of the retailer is not the standard and that “non-food purposes” means “not for human consumption.” Therefore, we conclude that Dry and Liquid malt Extracts are food products even when sold by retailers of beer-making supplies for the purpose of making beer or other carbonated and/or alcoholic malt beverages. We are currently in the process of revising the applicable authorities. I have already contacted Ms. McNeill to correct the previous opinion. I hope the above discussion has answered your question. If you need anything further, please do not hesitate to write again. Sincerely,

John L. Waid
Tax Counsel
JLW:es
cc:

Mr. O. A. McCarty, Supervisor, Return Review