How are sales of cereal malt beverage and beer taxed in Kansas after the 2017 and 2018 law changes?

Plain-English summary

Kansas Notice 18-04 walks through two law changes -- both effective April 1, 2019 -- that change who may sell cereal malt beverage (CMB) and beer and how those sales are taxed.

Definitions. "Cereal malt beverage" is a fermented malt liquor of no more than 3.2% alcohol by weight. "Beer" is over 3.2% by weight; for this notice, "beer" means beer not more than 6% alcohol by volume.

2017 change -- who can sell what (House Substitute for Senate Bill 13). Before SB 13, a CMB retailer couldn't sell beer and a retail liquor store couldn't sell CMB. Under SB 13:

• CMB retailers (grocery, convenience, and drug stores) may sell beer in addition to CMB.
• Retail liquor stores may sell CMB and other goods or services on the licensed premises, as long as those other sales (excluding lottery tickets, cigarettes, and tobacco products) do not exceed 20% of total gross sales.

2018 change -- how beer is taxed at CMB retailers (House Bill 2502). HB 2502 amended K.S.A. 79-3602 to add subsection (hhh), which -- for sales-tax purposes only -- defines "cereal malt beverage" to include beer of not more than 6% alcohol by volume when sold by a CMB-licensed retailer.

The resulting tax treatment.

• A CMB retailer charges state and local sales tax on both its CMB and its beer sales (these cannot be taken as a deduction on the sales tax return).
• A retail liquor store does not charge sales tax on beer -- beer it sells stays subject to the 8% liquor enforcement tax -- but it does charge state and local sales tax on CMB and other goods it sells.
• CMB or beer sold by a club or drinking establishment (liquor by the drink) remains subject to the 10% liquor drink tax.

Heads-up. The changes apply to package sales by a CMB retailer or liquor store and to on-premises CMB sales by a CMB retailer. The Department said it would send another reminder notice in January 2019 (issued as Notice 19-01) before the April 1, 2019 effective date.

What this means for you

Grocery, convenience, and drug stores (CMB retailers)

• Starting April 1, 2019 you may sell beer as well as CMB, and you charge state and local sales tax on both.

Retail liquor stores

• You may sell CMB and limited other goods (under 20% of gross sales); beer you sell stays subject to the 8% liquor enforcement tax, not sales tax, while CMB and other goods are sales-taxed.

Clubs and drinking establishments

• CMB or beer sold by the drink remains subject to the 10% liquor drink tax.

Common questions

When do the changes take effect? April 1, 2019.

How does a CMB retailer tax beer? With state and local sales tax, the same as its CMB sales.

How does a retail liquor store tax beer? Not with sales tax -- beer stays under the 8% liquor enforcement tax; CMB and other goods it sells are sales-taxed.

What about a club or drinking establishment? CMB or beer sold there remains subject to the 10% liquor drink tax.

Citations and references

• 2017 House Substitute for Senate Bill 13 -- lets CMB retailers sell beer and retail liquor stores sell CMB and limited other goods (under a 20% gross-sales cap).
• 2018 House Bill 2502, adding K.S.A. 79-3602(hhh) -- treats beer of not more than 6% alcohol by volume as "cereal malt beverage" for sales-tax purposes when sold by a CMB-licensed retailer.
• K.S.A. 41-2701 -- source of the "cereal malt beverage" definition referenced by the new subsection.
• Effective date April 1, 2019; retail-liquor-store beer stays under the 8% liquor enforcement tax; club/drinking-establishment sales stay under the 10% liquor drink tax.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 18-04

Original ruling text

TAX POLICY DEPARTMENT OF REVENUE
109 SW 9th STREET PHONE: 785-368-8222
PO BOX 3506 FAX: 785-296-7928
TOPEKA, KS 66601-3506 www.ksrevenue.org
GOVERNOR JEFF COLYER, M.D.
SAMUEL M. WILLIAMS, SECRETARY

                                        NOTICE 18-04

       2017 AND 2018 CHANGES TO SALES OF CEREAL MALT BEVERAGE AND BEER
                                 (JULY 1, 2018)

Under Kansas law the term, "cereal malt beverage" (CMB) means "any fermented or undistilled
liquor brewed or made from malt or from a mixture of malt or malt substitute or any flavored malt
beverage . . . . but does not include any such liquor which is more than 3.2% alcohol by weight."

The term "beer" means "a beverage containing more than 3.2% alcohol by weight, obtained by
alcoholic fermentation of an infusion or concoction of barley, or other grain, malt and hops in
water and includes beer, ale, stout, lager, porter and similar beverages having such alcoholic
content." For purposes of this Notice, "beer" cannot contain more than 6% alcohol by volume.

2017 Changes to Sales

During the 2017 Legislative Session House Substitute for Senate Bill 13 was passed and signed
into law. Changes made by the Bill, which take effect April 1, 2019, affect the sale of cereal malt
beverage and beer.

Prior to the passage of Senate Bill 13 a retailer licensed under the cereal malt beverage act (a
"CMB retailer") was not permitted to sell beer, and a retailer licensed under the liquor control act
(a "retail liquor store") was not permitted to sell CMB. With the passage of Senate Bill 13, a CMB
retailer or retail liquor store may sell both CMB and beer (see New Section 1, Section 4, and
Section 7 of the Bill). In addition, a retail liquor store may "sell any other good or service on the
licensed premises, except that the gross sales of other goods and services, excluding fees derived
from the sale of lottery tickets and revenues from sales of cigarettes and tobacco products, shall
not exceed 20% of the retailer's total gross sales."

In summary, these changes mean that:

     CMB retailers (such as grocery stores, convenience stores, and drug stores) will be allowed
     to sell beer, in addition to CMB.

     Retail liquor stores will be allowed to sell CMB and other goods or services on their
     licensed premises, as long as those sales (excluding the sale of lottery tickets, cigarettes,
     and tobacco products) do not exceed 20% of their total gross sales.

2018 Changes to Taxation

During the 2018 Legislative Session House Bill 2502 was passed and signed into law. Changes
made by this Bill, which take effect April 1, 2019, affect the taxation of beer sold by a CMB
retailer.

Section 5 of the Bill amends K.S.A. 2017 Supp. 79-3602, which provides definitions used in the
Kansas retailer's sales tax act. The amendment adds subsection (hhh) which provides:

       (hhh) "Cereal malt beverage" shall have the same meaning as such term is defined
 in K.S.A. 41-2701, and amendments thereto, except that for the purposes of the Kansas
 retailers' sales tax act and for no other purpose, such term shall include beer containing
 not more than 6% alcohol by volume when such beer is sold by a retailer licensed under
 the Kansas cereal malt beverage act.

In accordance with this provision, a CMB retailer will charge state and local sales tax on their sales
of CMB and on their sales of beer. This will generally include locations such as grocery stores,
convenience stores, and drug stores. Please note these sales cannot be used as a deduction on the
Kansas Retailers' Sales Tax Return.

A retail liquor store will not charge sales tax on their sales of beer. Beer sold by a retail liquor
store remains subject to the 8% liquor enforcement tax. Other goods or services sold by a retail
liquor store on their licensed premises (excluding the sale of lottery tickets) will be subject to state
and local sales tax. This includes the sale of CMB.

It is important to note the changes explained above apply to package sales of CMB or beer made
by a CMB retailer or a retail liquor store, and to on premises sales of CMB made by a CMB retailer.
The changes do not apply to CMB or beer sold by a retailer licensed under the club and drinking
establishment act to sell liquor by the drink who operates a club or drinking establishment. CMB
or beer sold in a club or drinking establishment remains subject to the 10% liquor drink tax.

This notice is intended to make you aware of the changes to the liquor laws that will be effective
April 1, 2019. This will allow you time to program your cash registers, adjust your tracking
mechanisms or make any needed software changes. Another notice will be sent in January 2019
to remind you of the changes.

This notice highlights only a portion of 2017 House Substitute for Senate Bill 13 and 2018 House
Bill 2502. For a detailed, full-text copy of these bills, please visit the Kansas Legislature's web
site at: www.kslegislature.org.

                              Taxpayer Assistance

Additional copies of this notice, forms or publications are available from our web site,
www.ksrevenue.org. If you have questions about this Notice, please contact:

                          Taxpayer Assistance Center
                         Kansas Department of Revenue
                           Topeka, KS 66612-1588
                             Phone: 785-368-8222
                              Fax: 785-291-3614