Were sales of viable yeast used to make wine taxable when California already treated comparable beer, mead, ale, and bread yeast as food products?

Plain-English summary

Tax Policy asked why California's annotations treated yeast used in wine differently from yeast used in beer when both served substantially similar fermentation functions.

Tax counsel concluded that viable yeast sold as food for human consumption was a food product under Regulation 1602 when used to produce wine, beer, mead, or ale. In both winemaking and brewing, yeast converted sugars into alcohol and carbon dioxide and contributed flavor, aroma, and alcohol content. The fact that the yeast was typically filtered out of the finished beverage did not make its sale taxable.

The memorandum requested deletion of two older annotations that taxed wine yeast or yeast granulars as inconsistent and misleading.

Common questions

Did yeast have to remain in the finished wine to qualify?

No. The memorandum expressly allowed the exemption even though fermentation usually filtered it out.

Why were wine and beer yeast treated alike?

Winemakers and brewers selected strains for the same kinds of fermentation, flavor, aroma, and alcohol effects.

Did the opinion cover every yeast product?

No. Its conclusion was limited to viable yeast sold as food for human consumption for the listed beverage production.

Citations and references

• California Sales and Use Tax Regulation 1602 (as cited)
• Sales and Use Tax Annotations 440.0780 (5/2/61), 245.1101 (11/23/83), and 245.0089 (8/10/95) — historical wine-, granular-, and brewing-yeast guidance discussed
• Tax Policy Division Chief Susanne Buehler's August 25, 2015 legal-opinion request, Assignment No. 15-456 — summarized; originating memorandum and attachments not reproduced in the official PDF
• Prior Board determination exempting viable yeast sold as food for bread and malted alcoholic beverages such as beer, mead, and ale — position stated without an identified opinion, ruling, date, or supporting record
• Viable yeast used in wort or must to convert sugars into alcohol and carbon dioxide and affect flavor, aroma, and alcohol content in beer and wine — process described; yeast strains, formulas, labels, samples, fermentation records, scientific sources, tests, invoices, and sales records not reproduced in the official PDF
• Requested deletion of Annotations 440.0780 and 245.1101 as inconsistent and misleading — stated; deletion approval, implementation record, and revised publication record not reproduced in the official PDF
• Supporting memorandum's January 6, 2016 date and current annotation's January 19, 2016 date — page uses the formal source-body date; source does not explain the later annotation date
• Copies to Kirsten Stark, Jason Parker, Brad Miller, and Lynn Whitaker — copy list printed; copies and any follow-up not reproduced in the official PDF
• Possible later product sale, audit, assessment, refund claim, appeal, 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/245-1102.pdf

Original ruling text

State of California

245.1102

Board of Equalization
Legal Department - MIC:82
Telephone: (916) 322-3283
Facsimile: (916) 323-3387

Memorandum
To:

Ms. Susanne Buehler, Chief
Tax Policy Division (MIC:92)

From:

Erin Dendorfer
Tax Counsel
Tax and Fee Programs Division (MIC:82)

Subject:

Yeast Used in Winemaking
Assignment No. 15-456

Date: January 6, 2016

On August 25, 2015, you requested a legal opinion regarding the application of tax to yeast used in winemaking. Your request states that it is your understanding yeast perform the same function in both winemaking and beer brewing. The Sales and Use Tax Annotations (Annotation or Annot.), however, state that tax applies to sales of yeast used in winemaking, but not sales of yeast used in beer brewing. (See, e.g., Annots. 440.0780 (5/2/61), 245.1101 (11/23/83), 245.0089 (8/10/95).) We have previously determined that tax does not apply to the sale of viable yeast that is sold as a food for human consumption in the production of bread and malted alcoholic beverages such as beer, mead, and ale because it is a food product under Regulation 1602. Active viable yeast is also used in the production of wine. In both processes, yeast is typically filtered out of the end product, but its presence during fermentation creates the end product. In the process of making beer or wine, yeast is added to wort or must to convert sugars into alcohol and carbon dioxide. In addition, yeast contributes to the flavor and aroma of beer or wine during the fermentation process. Yeast strains also vary in alcohol tolerance, which affects the alcohol content in the end product. Beer brewers and winemakers select specific strains of yeast for the flavor, aroma, and alcohol content that the yeast contributes to the end product. Therefore, we find that the use of yeast in both wine making and beer brewing is substantially similar. To answer your question, like beer yeast, the yeast purchased by winemakers to produce wine for human consumption is a food product. (See Reg. 1602.) Therefore, despite the fact that yeast is typically not incorporated into the end product, sales of viable yeast that is sold as food for human consumption and is used in the production of beer, mead, ale, and wine are not subject to tax under Regulation 1602. As a result, we request that the follow annotations be deleted as inconsistent and misleading: 440.0780 Yeast Used in Wine. 5/2/61. 245.1101 Yeast Granulars. 11/23/83. ED/yg

Ms. Susanne Buehler, Chief

cc:

Ms. Kirsten Stark
Mr. Jason Parker
Mr. Brad Miller
Ms. Lynn Whitaker

-2-

(MIC:50)
(MIC:44)
(MIC:92)
(MIC:50)

January 6, 2016