Every state has different sales tax law, which makes it challenging as a brewery owner to ensure you are in compliance with the rules and regulations of each state. Adding to that, states view manufacturing sales tax in different ways. One of the ways that legislatures believe that they can help grow the economy is to lower taxes for manufacturers. So it’s quite common to exempt sales tax from the large equipment (brew house, tanks, etc.) that builds a brewery. While you are planning your brewery, check your local sales tax law to see if your equipment is taxable in your state. It could be exempt from tax or merely subject to a lower sales tax rate. In addition, most states exempt raw material and those items used to create beer. It’s easy to exempt malt and hops, but what about CO2, water and electricity? These things are consumed to make the final product and are often free from sales tax.
Now let’s talk about the state of California. California sees the value in manufacturing and has implemented a partial sales and use tax exemption. That means that all capital equipment purchased for a brewery is taxed as a partial rate, plus a local rate on your capital equipment purchases. It’s very important that as you make your buying decisions that you go back and make sure that you are paying that lower rate of tax. State of California auditors are auditing tax payers specifically for this exemption. Ensure you are paying that lower rate of tax so that you are not surprised by the state of California.
In September 2017, the Governor signed AB 131 which expanded and modified the existing partial sales tax law. The partial exemption is now due to sunset on June 30, 2030. The following criteria must be met in order to qualify for the discounted rate:
The purchaser must be primarily engaged in the line of business described in the North American Industry Classification codes 3111-3399. They must purchase qualified property for qualified uses.
Qualified property must be:
- Machinery, equipment and component parts with a useful life of one or more years.
- Property that helps operate, control, regulate or maintain qualified property.
With this new law, qualified property is now retroactively eligible for years beginning July 1, 2014.