Which brewery materials could be bought for resale, and which were taxable processing or packaging supplies?

Plain-English summary

The brewery schedule divided inputs by their function and destination in beer production.

Chillproofers and foam stabilizers such as papain, pepsin, gum arabic, Tansul, and the other listed products qualified for resale because the evidence had not shown them to be valueless residues; brewmasters and chemists believed their presence affected flavor, consistency, foam, and other expected properties. Water-conditioning salts and acids also qualified because they remained in beer and adjusted brew water to accepted mineral profiles.

Organic ingredients—including grains, hops, juniper berries, malt, enzymes, and yeast—received nontaxable treatment under the stated food and annual-plant rules. Clarifiers such as activated carbon, colloidal clay, gelatin, Irish moss, isinglass, talc, Dicalite, and Inerto were taxable because they were used to clarify beer and largely filtered out.

Bung tins, filter materials, barrel-repair pitch, returnable kegs and barrels, and revenue-stamp protectors were taxable. Bungs, nonreturnable containers, paper bottle wrappers, wooden plugs, and tap corks qualified for resale. Combination packages containing Tansul and Inerto required allocation between the resold and consumed portions.

A May 29, 1996 legal memorandum expressly reviewed and agreed with the older schedule, and the source lists both January 1, 1950 and May 29, 1996. This page uses the later controlling review date.

Citations and references

• California Sales and Use Tax Ruling 48 (as cited for annual plants)

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/440-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/440-1926.pdf

Original ruling text

APPLICATION OF THE TAX TO MATERIALS PURCHASED BY BREWERIES A.

Products Used in Brew:
(1)

Chillproofers and Foam Stabilizers
Activase
Century Special
Cerevase
Collupulin
Diastase
D & S Schaumade
Gum Arabic
Heading Powder
KMS Crystals
Liquidase
Mitt body foam
Papain
Pepsin
P/L 104
P/L 400
Rapidose
Reinfirm
Tansul

COMMENTS
The above listed chemicals, colloids, and proteolytic enzymes are used in the brew for the purpose of putting the ingredients in such chemical condition as will obviate cloudiness in the beer when chilled, and/or will improve the foaming qualities of the beverage. The theory has been advanced that many of these products, while undoubtedly remaining for the most part in the brew, were purchased for a use other than for resale, namely, to cause changes in the chemical composition of the ingredients so as to improve the resulting product. If it could be demonstrated that, after having caused chemical changes without entering into them, the products (such as enzymes) were to as great a degree as possible either precipitated or filtered out, with a remainder of only a portion that had no value to the beverage but could not be removed practically, there would be little doubt that they had been purchaed for a use other than resale. However, such a condition has not been demonstrated, and it si the firm belief of brewmasters and chemists that, not only do these products remain to a great degree in the beverage, but that the distinctive flavor, consistency, and properties of the beverage would be so altered were it possible to remove them, that the resulting product would not be what people have benn accustomed to since time immemorial. While there is undoubtedly a strong legalistic and technical argument in favor of the theory that the products (such as enzymes) were purchased for a purpose other than resale, it is apparent that such a decision would offend the common man’s notions of reality. It, therefore, appears that the practice which has been generally followed in the past of considering these items as having been property purchased for resale as component ingredients of the finished product, should be continued.

440.1926

(2)

Water Conditioners
Burton Salts
Calcium Chloride
Gypsum (Calcium Sulphate)
Hydrated Lime
Lactic Acid
Sodium Bisulphite
Sulphuric Acid
Tannic Acid
Tartaric Acid

COMMENTS:
To make beer or ale of an accepted pattern of palatability, it is necessary to adjust the mineral content of the brew water to approximate that of waters that are considered best for the purpose. For that reason brew water is treated with the above salts and acids, and recognized professional opinion holds that they remain in the finished beverage and were bought for the purpose of constituting a part of it. (3)

Organic Ingredients
Enzymes
Grains
Hops
Juniper Berries
Malt
Yeast

COMMENTS:
Those of the above products which are food products in themselves are, by virtue of the rule on food products, property purchased ex-tax. Enzymes have been discussed in Section A(1) above. The question has been raised as to whether or not yeast is purchased for a purpose other than resale because, after having been used in the brew, masses of it are filtered out, indicating that it may have been purchased for a purpose other than resale as a component part of the finished beverage. Yeast is a plant and feeds on the starch in the brewer’s grains. As it grows it converts starch into alcohol and carbon dioxide, the component parts of which were, prior to their creation, components of the yeast plant. It would appear, therefore, that it would be reasonable to apply the rule on annual plants and hold that the yeast is property purchased for resale, it being a plant whose product is resold, and the life of the plant being one season (Ruling 48).

440.1926

(4)

Clarifiers
Activated Carbon
Colloidal Clay
Dicalite
Gelatin
Irish Moss
Isinglass
Talc Sierra Snow
Inerto (When sold in combination packages with Tansul, the combination is known as Tansul 7. Breakdown must be made so Inerto is consumed in manufacture of beer, while Tansul is properly purchased for resale as component part of beer.)

COMMENTS:
The above-listed products are purchased for the purpose of clarifying the beer and are to the most part filtered out. Accordingly, they are purchased for a purpose other than resale, and the sale to the brewer is a retail sale. B.

MISCELLANEOUS ITEMS:
(a)

Taxable items purchased for use and not considered resold: 1. 2. 3. 4. 5. 6.

(b)

Bung tins
Filter Asbestos
Filter Mass
Pitch to repair barrels
Returnable containers such as kegs and barrels
Revenue Stamp Protectors. (While one of these items is used on each barrel sent out, it is our opinion that it is not an integral part of the container; and while one is consumed on each trip of the barrel, it is used for revenue purposes, not for container purposes, and would be more comparable to a shipping label.)

Non-taxable purchases considered for resale:

1. Bungs
2. Non-returnable containers
3. Paper wrappers in which beer bottles are wrapped for shipment in
   cases
4. Plugs, wooden
5. Tap corks used to close beer barrels and knocked out when beer barrel
   opened

State of California

Board of Equalization
Legal Division (MIC:82)

Memorandum

To:

Mr. Glenn Bystrom

From:

Gary Jugum

Subject:

Non-Attorney Opinions

440.1926

Date:

May 29, 1996

I have reviewed Application of Tax to Materials Purchased by Breweries memorandum. We are in agreement with his conclusion, as follows:

Beer Brewing. Ingredients used in the brew to obviate cloudiness in chilled beer or to improve the foaming qualities of the beer may be purchased for resale even though they are largely precipitated or filtered out. Examples are: Activate Century Special Cerevase Collopulin Diatase D&S Schaumade Gum Arabic Heading Powder

KMS Crystals
Liquidase
Mitt Body Foam
Papain
Pepsin
P/L 104
P/L 400
Rapidose
Reinfirm
Tansul

Chemicals added to brew water to improve the taste of the beer may be purchased for resale. Examples are: Burtom Salts Gypsum (Calcium Sulfate) Hydrated Lime Lactic Acid Sodium Bisulfite

Calcium Chloride
Sulfuric Acid
Tannic Acid
Tartaric Acid

Ingredients which are food products in themselves are not subject to tax. Examples are grains, hops, juniper berries and malt, as well as enzymes.

Mr. Glenn Bystrom

-2-

May 29, 1996
440.1926

Products used to clarify the beer are manufacturing aids and subject to tax. Examples are: Activated Carbon Colloidal Clay Dicalite Gelatin

Irish Moss
Isinglas
Tacc Sierra Snow
Inerto

Bung tins, filter asbestos, filter mass, pitch for barrel repair, returnable containers and revenue stamp protectors are not regarded as containers. Paper bottle wrappers, wooden plugs, and tap corks may be purchased for resale. 1/1/50. 5/29/96. 100597I