The Pennsylvania General Assembly recently passed an amendment to the state’s sales tax law that will be of interest to breweries operating taprooms in Pennsylvania. Effective October 1, 2019, breweries must begin collecting sales tax on each individual retail sale to patrons, but on a reduced tax base intended to approximate the amount of tax due at the wholesale level. The change in the law is a compromise measure intended to place breweries and other retail establishments on equal footing. While breweries will have to begin collecting sales tax on their products sold at taprooms, the special tax base makes for a much easier pill to swallow than what was initially floated by the Pennsylvania Department of Revenue (“DOR”).
Generally, Pennsylvania imposes sales tax on the sale of liquor and malt or brewed beverages at the wholesale level. The sale of alcoholic beverages to patrons by bars and restaurants with retail liquor licenses is not subject to tax. A plain reading of the sales tax statute could have permitted the DOR to require the collection of tax on all sales of beer by a manufacturer without a “retail” liquor license. (Brewery and brewery pub licenses are not considered “retail” liquor licenses.) However, sales tax historically was not collected on taproom sales.
Then, in July 2018, the DOR issued Sales Tax Bulletin No. 2018-02, which indicated that, effective January 1, 2019 (later extended to July 1, 2019), Pennsylvania breweries would be required to collect sales tax on all product sold to the public for on-premises or off-premises consumption. Breweries were given an option to include the sales tax in the advertised price of their product or to separately state and charge sales tax on each individual sale.
The sales tax on taproom sales was going to be imposed on the full retail price of the beer. Thus, taproom sales would have been subject to a much higher effective tax rate than the tax rate imposed on traditional beer sales at the wholesale level. The craft beer industry fought for “tax parity,” and the result was an amendment to the tax code whereby sales tax will be imposed on only 25% of the retail sales price of malt or brewed beverages sold by a manufacturer directly to the ultimate consumer for consumption on or off the premises. This is intended to approximate the amount of tax that would be due at the wholesale level. The tax code amendment is effective for sales occurring after September 30, 2019. The delayed effective date will allow breweries time to update their systems to comply with the new sales tax rules.