Was XY 'Wine Without Alcohol' exempt when it was 99.51% alcohol-free and below the alcoholic-beverage threshold?

Plain-English summary

XY “Wine Without Alcohol” was 99.51% alcohol-free and was not carbonated or effervescent. Its remaining alcohol content was below the one-half-of-one-percent threshold in Business and Professions Code section 23004's definition of an alcoholic beverage.

That alcohol-control definition did not decide the sales-tax result. Board counsel treated the product as wine because it was fermented grape juice and still contained alcohol.

Revenue and Taxation Code section 6359 and Regulation 1602 excluded spirituous, malt, and vinous liquors from food products. The beverage therefore remained taxable tangible personal property rather than exempt food.

Common questions

Did being below 0.5% alcohol make the product exempt?

No. It avoided the cited alcoholic-beverage definition but did not prevent classification as wine for sales tax.

Why was the product considered vinous liquor?

It was fermented grape juice and still contained alcohol.

Did carbonation matter here?

The product was not carbonated or effervescent. The conclusion rested on its character as wine, not carbonation.

Citations and references

• California Business and Professions Code section 23004 (as cited)
• California Revenue and Taxation Code sections 6051, 6201, and 6359, including subdivision (b)(3) (as cited)
• California Sales and Use Tax Regulation 1602, including subdivision (a)(2) (as cited)
• Unidentified requester's May 22, 1986 letter asking whether XY Wine Without Alcohol was taxable vinous liquor or exempt food — letter referenced and question characterized but not reproduced in the official PDF
• Unidentified prior Board decision treating sub-0.50-percent-alcohol products as wine for sales and use tax — decision referenced without product, opinion, ruling, annotation, date, analysis, or supporting record in the official PDF
• Webster's Third New International Dictionary definition of wine — quoted without edition date, page, publication record, or URL
• XY Wine Without Alcohol evidence concerning 99.51-percent alcohol-free content, absence of carbonation or effervescence, fermentation from grape juice, and remaining alcohol — facts supplied; complete formulation, production method, alcohol test, label, package, samples, invoices, and sales records not reproduced in the official PDF
• Official Annotation 245.1910's shortened product name and source-printed 0.505-percent statement — annotation does not explain the name change or its 0.505-percent figure versus the official PDF's 0.50 percent
• Possible later product sale, label, formulation, production-method or alcohol-content change, 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/245-1910.pdf

Original ruling text

245.1910

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
(916) 445-2641

July 31, 1986

Your letter of May 22, 1986 has been referred to me for reply. You have requested our opinion as to whether XY “Wine Without Alcohol,” which is 99.51 percent alcohol free and not carbonated or effervescent, is considered a vinous liquor, the sales of which are subject to sales tax, or whether, due to the low alcoholic content, is a food product, sales of which are not subject to sales tax. Business and Professions Code section 23004 defines an “Alcoholic beverage” as one which “contains one half of 1 percent or more of alcohol by volume.” However, although XY wine would not be considered an alcoholic beverage pursuant to section 23004, we have previously decided that, for sales and use tax purposes, such products are considered wine notwithstanding their containing less than 0.50 percent alcohol. Wine is defined in Webster's Third New International Dictionary to be “the fermented juice of the grape containing varying percentages of alcohol and having a composition and character that depends chiefly upon the grapes used and the climate and soil of the area in which they are grown.” (Emphasis added.) California Sales and Use Tax Law imposes tax on the sale or use of tangible personal property in this state, unless such sale or use is exempt from taxation by statute (see Rev. & Tax. Code §§ 6051 and 6201). Revenue and Taxation Code section 6359 and Sales and Use Tax Regulation 1602, “Food Products”, provide that tax does not apply to the sale of food products for human consumption. Specifically excluded from the term “food products” are “spirituous, malt or vinous liquors”. (Revenue and Taxation Code § 6359(b)(3), Regulation 1602(a)(2).) In our opinion, the product in question here falls within the category of spirituous or vinous liquors because it is fermented juice of the grape and contains alcohol. It follows, sales of this beverage are not exempt sales of food products but, rather, are taxable sales of tangible personal property. If you have any further questions, please write this office. Very truly your,

E. Leslie Sorensen, Jr.
Tax Counse
ELS:md