Were hops and other food ingredients exempt when breweries consumed them in making taxable beer?

Plain-English summary

The official annotation states that when breweries were the consumers of the beer they produced, food-product ingredients remained exempt even though they entered a taxable beverage.

Examples included sugar, corn grits, and soybean flakes. Hops were treated as flavoring extracts and therefore as food products. Chemical additives were not food products and remained taxable.

The supporting PDF documents how the annotation was maintained. A 1991 memorandum explained that hops had been determined to be exempt flavoring extracts and that food status was not lost merely because an ingredient was used to make beer for human consumption. A 1998 memorandum said the point was already fully covered by Annotation 280.0240 dated September 26, 1969 and recommended consolidating duplicate entries.

The current official annotation uses that 1969 date and notes a 2000 amendment. The published PDF does not contain the underlying 1969 opinion itself.

Common questions

Did incorporation into taxable beer make food ingredients taxable?

No. The annotation says qualifying food ingredients stayed exempt when breweries consumed them in making beer.

Why were hops exempt?

Board counsel treated them as flavoring extracts and therefore food products.

Were all brewing inputs exempt?

No. The annotation expressly distinguishes taxable chemical additives.

Citations and references

• California Revenue and Taxation Code section 6359 (as discussed)
• California Sales and Use Tax Regulation 1602 (including subdivisions (a)(1) and (c)) (as discussed)
• Former California Sales and Use Tax Ruling 52(c) — discussed as Regulation 1602(c)'s predecessor
• California Sales and Use Tax Annotations 245.0780, 245.1420, 245.1440, 245.1483, and 280.0240 — as discussed in the maintenance history
• Annotation 280.0240 dated September 26, 1969, identified as fully covering hops and food ingredients used to make beer — annotation referenced but underlying opinion and complete source record not reproduced in the official PDF
• Three or four April 15, 1991 letters said to reverse prior advice about hops, plus same-date duplicate hops annotations — letters referenced but not reproduced; complete duplicate-entry history not supplied in the official PDF
• E. H. Stetson opinion letter supporting Annotation 245.0780, dated November 4, 1957 in the annotation — letter quoted in part but not reproduced in the official PDF
• 1951 and 1953 brewer's-yeast letters and a 1963 malt-extract letter discussed under Annotation 245.1440 — dates described; malt-extract and brewer's-yeast-powder letters expressly missing from the source files, and none reproduced in the official PDF
• Long negotiations with the brewing industry concerning brewer's yeast and related products — negotiations referenced without dates, participants, correspondence, minutes, agreements, or other records
• Official Annotation 245.1483's Am. 2000-1 notation — amendment details and underlying record not supplied on the annotation page or in the official PDF
• 1998 recommendation to delete duplicate hops entries and copy or move Annotation 280.0240 into the 245 series — recommendation reproduced; implementation record and explanation for the current retained entry not supplied

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/245-1483.pdf

Original ruling text

State of California

Board of Equalization

Memorandum
To:

Anderson, Vic; Khabbaz, Leila

From:

Levine, David

Subject:

hops and annotations 245.1420 and 245.1483

245.1483
Date:

August 13, 1998 1:39PM

Hops is listed in this annotation as “Hops Flavoring Extracts 4/15/91”. There is also a separate annotation with the same date that says: 245.1483 Hops Used in Brewing Beer. Hops are exempt food products, e.g., flavoring extracts. 4/15/91. These are both based on the same letter (actually there are three or four of that date because Waid sent out several that day to reverse what he had said previously). There’s no reason to have this twice, and if we were going to leave one, we’d leave 245.1483 because it says a bit more. But, if we were going to leave that one in, we’d need to rewrite so that you don’t have to read between the lines based on the heading and include the full explanation (as laid out in the backup). However, that is unnecessary. Annotation 280.0240 (9/26/69) already fully covers this point. It covers that hops are food, and that the use of food to make beer qualifies for exemption. Thus, please delete BOTH the reference to hops in 245.1420 AND 245.1483. 280.0240 should be either copied, or moved, to the 245 series. You could leave the just the first sentence in the 280 series and include only the rest, with an appropriate intro, in the 245 series, or you could just copy it into 245 as is.

State of California

Board of Equalization

Memorandum

To:

Mr. John G. Abbott
Senior Tax Counsel (Supervisor)

From:

John L. Waid
Tax Counsel

Subject:

Revising Annotations

245.1483

Date:

April 15, 1991

A. Annotation 245.0780
This annotation is misleading and should be changed. It now reads as follows: “Non-Food Purposes. The sale of that which would ordinarily be food items exclusively for non-food purposes, would not be regarded as within the exemption.” 11/4/57. The opinion letter supporting this annotation was written by Mr. E. H. Stetson and states, in pertinent part, as follows: “We believe that the taxable status of sales of ordinary food items sold by food retailers should not be affected by the fact that some particular purchaser may intend to use the items for other than food for human consumption. On the other hand, if someone sold what would ordinarily be food items exclusively for nonfood purposes, it would probably be in order to regard such sales as not within the exemption. At the time the letter was written, Ruling 52(c) was in effect. It was replaced, without change, by Regulation 1602(c), which indicates that when it says “non-food purposes,” it limits that term to mean “not for human consumption.” The interpretation of this regulation provided by the annotation, however, makes it appear that if the retailer is not a food retailer and the commodity sold goes into items that are defined by Regulation 1602 as not being food products, then sub-division (c) does not apply. The annotation indicates that the emphasis in sub-division (c) is on the nature of the retailer and also that the meaning of term “non-food purposes” is not limited to “not for human consumption.”

Mr. John G. Abbott

-2-

April 15, 1991
245.1483

In view of the foregoing, I suggest that the annotation be revised to read as follows: “The sale of that which would ordinarily be food items exclusively for a purpose that does not include-human consumption would not be regarded as within the exemption.” P. Annotation 245.1440 This annotation lists brewer’s yeast, brewer’s yeast powder, and brewer’s yeast flakes, and malt extract as not being “food products” under Section 6359 and so subject to tax. The letters on the three brewer’s yeast products date from 1953 and 1951, and the one on malt extract, according to the annotation, dates from 1963. I cannot find the letters on malt extract and brewer’s yeast powder in the source files. It was determined after long negotiations with the brewing industry that brewer’s yeast and brewer’s yeast products, unless sold in certain forms as dietary supplements or adjuncts, were food products, even when sold to make beer. Malt and malt extract were listed as “food products” in a subsequent revision to Regulation 1602 (a) (1). Hops were also determined to be flavoring extracts and so exempt from taxation under that regulation. I suggest that the references to brewer’s yeast, brewer’s yeast products, and malt extract be removed from the annotation. A reference to hops should be inserted in Annotation 245.1420, or an annotation all its own should be created.

JLW:es