There’s nothing quite like winding down after a long week with a glass of wine, but what you might not be aware of is the complex tax regulations that are impacting the sale of your alcoholic beverage of choice.
For most people, alcohol taxes aren’t particularly notable beyond how they impact the final sales price. For businesses involved in the sale of alcohol (especially online retailers) however, recent changes due to the pandemic and the 2018 Wayfair decision are creating a bit of a mess.
The first factor in this mess are the taxes placed on alcohol sales. Alcohol taxes are particularly complicated for a number of reasons. Some of this is due to its nature as a legal but still heavily regulated drug. Some of it may also trace back to the historic importance of alcohol taxes as a source of revenue for the U.S. government.
Taxes on alcohol have also been seen as a way of offsetting the negative externalities associated with alcohol consumption, including motor vehicle accidents, the burden of alcohol-related illness on the healthcare system and alcohol-related violence.
The inherent complication of federal excise taxes and the fact that alcoholic beverages are taxed at different rates depending on the amount of ethanol contained in the drink only adds to the complexity. And that’s before you consider the sales taxes on alcohol at a state and local level. Those rates also depend on the previously mentioned factors, which are individually weighed and applied by each state and local government.
What this all boils down to is that, similar to economic nexus and marketplace facilitation regulations, the rate alcohol is taxed at varies wildly across the country.
Readers of this blog are well aware of the complexity of Wayfair-related legislation. When you throw in alcohol taxes, it gets exponentially worse.
In terms of marketplace facilitator legislation, recent booms in the sale and purchase of alcohol online (which comes with its own complications) due to the pandemic and relaxing restrictions on those sales are putting some retailers and marketplace facilitators in a sticky situation. In regards to online sales of alcohol made across state lines, states are still determining how economic nexus factors in within those situations as well.
Accounting Today recently shared how Uber’s upcoming acquisition of alcohol delivery service Drizly as well as a recent round of funding for Vivino, an online wine marketplace, likely herald many upcoming changes to online alcohol sales and the taxation of them.
For instance, California’s Alcoholic Beverage Control department (“CA-ABC”) issued a directive on November 18, 2020, based on “numerous inquiries seeking clarification or further guidance in the context of unlicensed activities and licensee relationships with unlicensed service providers.”
The CA-ABC “remains concerned that certain activities by Third Party Providers may violate California law, particularly in the areas of sales by a person without a license…” Nevertheless, the CA-ABC “believes that licensees and Third Party Providers can form business relationships that facilitate lawful transactions for sales of alcoholic beverages over the Internet.”
The CA-ABC directive describes the limitations and responsibilities of the alcoholic beverage licensee and the Third-Party Provider; in other words, marketplace facilitators.
It would behoove all online marketplace facilitators that intend to sell alcoholic beverages to review this directive. In fact, Texas considered the “California model” in their “Marketing Practices Advisory – MPA056”.
In 2019, the Texas Alcoholic Beverage Commission (“TABC”) started issuing “Consumer Delivery Permits” that allow third-party companies to make alcohol deliveries; the third-party companies are permitted to pick up alcohol from businesses licensed by the TABC, such as bars, restaurants and liquor stores.
Complying with tax regulations is always important for online retailers, but it’s especially important for businesses making sales on alcohol.
If businesses fail to accurately collect and remit these taxes, they face more than just a potential audit or fines. Instead, they may lose necessary alcohol beverage licenses and their ability to make sales of alcohol altogether.
If you have questions regarding the taxation of alcohol and how it impacts your business, or any other state sales tax compliance questions, please contact us today. We’re happy to clarify any multi-state tax issues you’re trying to navigate and ensure your business stays tax compliant.
