Sales and Use Tax in CA Tasting Rooms
Sales Tax Beyond Selling a Bottle of Wine in the Tasting Room
I setup a lot of tasting rooms using QuickBooks Point of Sale and QuickBooks Accounting products to manage the inventory of wineries and sell wine in the tasting room. It works really well with a little guidance and we have even published a book on the topic. While we don’t offer tax advice and will help you deploy the applications as you believe might be right, we often enter these sales and consulting engagements and find ourselves giving the follow advice on the topic of Sales and Use Tax.
I think you need to talk to your CPA or tax advisor about what you might be missing in terms of sales and use tax matters. I don’t think anyone has a question about the taxability of a bottle of wine to the end user/consumer. Everyone seems to agree that is a taxable transaction and should be treated as such. However, there are a lot of other transactions I believe you should talk to your accountant about and make sure you have the right understanding. Perhaps you should encourage them to review California State Board of Equalization Publication 22 (Dining and Beverage Industry)
Transactions to Consider When Reviewing Use Tax
We doubt we have them all, but here are a few examples we find that winery/tasting rooms might want to review with their accountant that are taken in summary from Publication 22:
Facility Fees Charged by retailers
According to the California State Board of Equalization Publication 22 (Dining and Beverage Industry), if a winery has a courtyard area designed for wedding receptions. In addition to charging for meals and drinks, the winery charges a fee for use of the courtyard. Since the courtyard is used primarily for serving meals and beverages, the fee for the use of the courtyard is taxable. However, if the bridal party rented the entire winery for the reception, separately stated charges for use of the facilities would not be taxable.
Tips, service charges, and cover charges
Mandatory “tips” or required service charges, on the other hand, are taxable. In the case of banquets, any gratuities that are agreed to in advance are considered required, not voluntary, and as a result are subject to tax. For example, if your standard banquet agreement states “the suggested gratuity is 15%” and prior to the event, your customer agrees to this or some other negotiated amount, the gratuity is taxable.
Self or Employee Consumed Wine
If you consume or give away food, noncarbonated beverages, or nonalcoholic drinks, you do not owe any tax for those items. However, if you consume or give away nonfood items, such as carbonated or alcoholic drinks, which you purchased without payment of tax, you must pay use tax, based on your cost of those items.
Tasting Room Fees (aka Cover Charges)
Cover charges that customers may recoup in food and beverages are taxable, whether or not the customer actually recoups those charges. On the other hand, separate charges solely for admission or for a ticket to a place furnishing entertainment are not subject to tax.
Complimentary Meals and Drinks
You are considered the consumer rather than the seller of these complimentary meals and drinks, and as a result are liable only for the tax on the cost of nonfood items that are given away (such as alcoholic beverages and carbonated soft drinks).
A Few More
There are other types of transactions not seemingly addressed in Publication 22 that we also want you to talk to your accountant about. Here are a few we recommend be on the discussions list:
Barter and Exchanges
Barters or exchanges are sales or purchases under the Sales and Use Tax Law. Tax normally applies to the fair market value of the property or services received.
Promotional Giveaway vs. Charitable Donations
This one is a bit tricky. If you purchased inventory with the intent to resell the items, then giving them away or consuming them for things like testing, gifts or for promotional purposes is going to be subject to tax. However, some donations made to qualified charitable organization may or may not be taxable. You may want to have your tax professional reach out to the CA BOE Taxpayer Information Section for more details on this topic
Determining Cost -
Are you paying too much Use Tax? One interesting thing we have heard from numerous accounting professionals is that while we may track the full cost of bottle of wine which can include many factors for accounting and tax reporting purposes, it might be that not all of this cost is going to be subject to Use Tax. Many have advised my clients that corks, labels, capsules and glass costs are what would be included in the Use Tax calculation.
Can I Track This in QBPOS and QuickBooks Accounting Products?
Yes, we prefer to have our clients use inventory adjustments in QBPOS in a way that makes it all reportable. From an accounting standpoint the value of inventory will be credited and an expense or cost of goods account will be debited in QuickBooks, the bookkeeper can then use the inventory adjustment reports in POS to determine the nature of the adjustment and book the appropriate entries.