Does a Kansas liquor distributor owe liquor enforcement tax on samples withdrawn from inventory?

Plain-English summary

Kansas Notice 15-14 (July 15, 2015) summarizes the liquor enforcement tax provisions of House Bill 2223, enacted by the 2015 Legislature and effective July 1, 2015 (upon publication in the statute book).

What changed. The bill amended K.S.A. 41-306, 41-306a, and 41-307 to let distributors withdraw spirits, wine, and beer or cereal malt beverage from inventory for use as samples -- provided to licensed distributors, retailers, clubs, and drinking establishments and their employees, under stated conditions (for example, no samples to minors and limits on where samples may be served).

The tax. Such sample withdrawals are subject to the tax imposed by K.S.A. 79-4101 et seq., based on the applicable current posted bottle or case price.

Reporting. Until the return is modified, report the posted price of the sample withdrawal on Line 1 of the Liquor Enforcement Tax Return (LE-3), with total gross receipts. Keep records that separately distinguish the total gross receipts and the price of samples withdrawn from inventory.

What this means for you

Liquor distributors

• Samples of spirits, wine, beer, or cereal malt beverage you withdraw from inventory are taxable at the posted bottle or case price; report them on Line 1 of the LE-3 and track sample withdrawals separately in your records.

Common questions

Are distributor samples taxed? Yes -- sample withdrawals from inventory are subject to the liquor enforcement tax at the posted bottle or case price.

Which products are covered? Spirits, wine, and beer or cereal malt beverage.

How are samples reported? On Line 1 of the Liquor Enforcement Tax Return (LE-3) with total gross receipts, until the return is modified to add a separate line.

When was this effective? July 1, 2015.

Citations and references

• House Bill 2223 (2015) -- amended K.S.A. 41-306 (spirits), K.S.A. 41-306a (wine), and K.S.A. 41-307 (beer/cereal malt beverage) to authorize distributor samples, subject to the tax under K.S.A. 79-4101 et seq. at the posted bottle or case price.
• Report on Line 1 of the LE-3; keep separate records of sample withdrawals.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 15-14

Original ruling text

Division of Taxation phone: 785-368-8222
915 SW Harrison St. fax: 785-296-4993
Topeka, KS 66612 www.ksrevenue.org

Nick Jordan, Secretary Sam Brownback, Governor
Steve Stotts, Director of Taxation

                                           NOTICE 15-14

                     Liquor Enforcement Tax Due on Distributor Samples

The following Bill was enacted by the 2015 Legislature:
House bill 2223
This bill was effective July 1, 2015, upon publication in the statute book. A summary of the Liquor
Enforcement tax implications in this bill is as follows:
Section 21(3)(f) amends K.S.A. 41-306 to indicate the following:
The withdrawal of spirits from such licensee's inventory for use as samples in the course of the
business of the distributor or at industry seminars. Samples may only be provided to persons
licensed as a distributor or a retailer under the Kansas liquor control act, and such person's
employees. Samples may be served on the licensed premises of the licensee, or on the premises
of a licensed retailer, provided no sample shall be served on that portion of the premises of a
licensed retailer that is open to the public and where sales of alcoholic liquor at retail are made.
No sample shall be provided to any minor. Nothing in this subsection shall be construed to
permit the licensee to sell any alcoholic liquor for consumption on the premises. The withdrawal
of spirits shall be subject to the tax imposed by K.S.A. 79-4101 et seq., and amendments thereto,
based on the applicable current posted bottle or case price. For purposes of providing samples
pursuant to this subsection other than at industry seminars or to the licensee's employees, the
term ''sample'' shall have the same meaning as that term is defined in K.S.A. 41-2601, and
amendments thereto.
Section 22(2)(f) amends K.S.A. 41-306a in a similar manner to indicate the taxability of wine
samples, except the distributor can provide samples to persons licensed under the club and
drinking establishment act and their employees.
Section 23(3)(g) amends K.S.A. 41-307 in a similar manner to indicate the taxability of beer or
cereal malt beverage samples, except the distributor can provide samples to persons licensed under
the club and drinking establishment act and their employees.
Reporting Requirements: At this time, the current posted bottle or case price of the sample
withdrawal should be reported on Line 1 of the Liquor Enforcement Tax Return (LE-3), with the
total gross receipts. When feasible, the LE-3 will be modified to include a line for the price of
samples withdrawn from inventory.
Record Keeping Requirements: Your records should include a breakdown to distinguish the
amount of total gross receipts and the price of samples withdrawn from inventory separately.
This notice highlights only portions of the bill. For a detailed, full text copy of each bill,
please visit the Kansas Legislature's website at www.kslegislature.org.
TAXPAYER ASSISTANCE
To obtain additional copies of this or any other notice call the Kansas Department of Revenue's voicemail forms
request line at 785-296-4937 or download them from our website: www.ksrevenue.org. If you have any questions
about this notice, please contact our Miscellaneous Tax Unit at (785)368-8222.

Notice 15-14
July 15, 2015