Raise a Glass: Pennsylvania Breweries Avoid Excessive Sales Tax Under New Law
On June 28, 2019, Governor Wolf signed into law HB262, which amends the Tax Code for various reasons, but most importantly to the brewing industry, clarifies sales tax assessment for a brewery’s taproom sales to its consumers.
This journey for breweries in Pennsylvania began approximately five years ago when yours truly re-wrote a portion of the Liquor Code. That was the first step in allowing breweries to serve beer on their own premises. Then, in 2015, through efforts of the Brewers of Pennsylvania (“BOP”), the Pennsylvania Liquor Control Board offered a draft regulation allowing brewery taprooms to sell beer for on-premise consumption if breweries had ten seats and offered snack items like a bag of chips. I remained involved and wrote a comment letter, on behalf of the BOP, to the Pennsylvania Independent Regulatory Review Commission, requesting that the Pennsylvania Liquor Control Board’s draft regulation be changed and conform to the Liquor Code which allowed beer to be sold by breweries which was produced at the licensed premise or owned by the brewery. The IRRC agreed and directed the Pennsylvania Liquor Control Board to amend the regulation.
Then, I requested a Legal Opinion from the Pennsylvania Liquor Control Board inquiring whether additional, brewery storage locations were permitted to serve beer to consumers at those premises. The Pennsylvania Liquor Control Board agreed with our position and a brewery’s storage location was allowed to sell its own beer for on-premises consumption without any production requirement at that site.
Next, with authorization for on-premise sales in hand, I, on behalf of the BOP, solicited an opinion from the Pennsylvania Department of Revenue in 2015 inquiring whether, under the Tax Code, breweries were to collect sales tax on direct sales to consumers for on or off-premise consumption in various packages. The Department of Revenue responded on July 2, 2015, that all such sales were exempt from Pennsylvania sales tax.
Fast forward to January of 2018 and the Pennsylvania Department of Revenue decided to re-interpret the Tax Code and summoned the BOP and me to Harrisburg to discuss the imposition of sales tax. In those meetings, the Pennsylvania Department of Revenue offered a draft of the Bulletin that was ultimately published and dramatically changed the Department of Revenue’s position from their letter to me in 2015. As a result of that Bulletin, all brewery sales directly to consumers were going to be assessed a 6% sales tax on the amount of the ultimate, retail sale to consumers. This would mean that breweries would be paying sales tax at four to five times the amount of sales tax charged by restaurants, grocery stores, and taverns which paid sales tax on the wholesale price. As a result of this new Bulletin, the BOP and its special sales tax team went to work.
The BOP worked closely with the Governor’s Office to formulate new legislation to clarify the issue. The new amendment to the Tax Code was prepared and provided that breweries should pay 6% sales tax on a portion of the retail sale and, specifically, 25% of the retail sale. Paying sales tax on a portion of the retail sale allowed the sales tax rates to normalize among brewery taprooms, grocery stores, restaurants, and taverns, as if the breweries, like those other retailers, were paying sales tax at the wholesale rate.
In searching on the Department of Revenue website on July 1, 2019, the sales tax bulletin previously posted on the website is conspicuously missing. The new law concerning sales tax will be effective October 1, 2019; that is, breweries will start collecting sales tax on 25% of the retail sales to consumers for on or off-premise consumption for sales occurring on or after October 1, 2019. Breweries should continue to collect and remit sales tax on the full amount of any sales it makes directly to retailers in the State; however, brewery sales directly to wholesalers in the State remain exempt since the wholesalers assess and collect the tax on its sale to the retailer. We expect the Department of Revenue to issue additional guidance in the next couple of months, so stay tuned.
Pennsylvania is one of the best beer states, if not the best beer state, in the United States. The new amendment to the Tax Code concerning sales tax on brewery sales is equitable and provides for certainty in the marketplace when it comes to sales tax. More work is to be done in order to ensure that Pennsylvania breweries have every opportunity to grow and prosper in the Commonwealth. Governor Wolf’s signature on HB262 last Friday is a positive step.
For additional information regarding this matter and other federal and Pennsylvania liquor law matters or general manufacturing and distribution advice, please contact me at tzeller@norris-law.com or call our offices at 610-391-1800.