BOE institutes new wine regulation

California is considering a new regulation that tax collectors say will provide clear direction to the wine industry regarding the circumstances under which a wine-based product will be classified as a distilled spirit for state tax purposes.

This proposed regulation follows the same approach as the Distilled Spirits Regulations that went into effect in 2008, the Board of Equalization says.

The change is meant to clarify the definition of wine, specifying that any wine-based product that contains substantial amounts of distilled alcohol, from sources other than the agricultural product from which the wine is produced, will be taxed as a distilled spirit, not as a wine.

“To allow the industry a transition period, the regulation will be effective January 1, 2012, upon approval by the Office of Administrative Law,” says Jerome Horton, chairman of the California Board of Equalization

Initially the wine industry was split on how to define wine and which products should be taxed at the higher rate, the BOE says. The resulting language of the regulation focuses on the type and amount of distilled alcohol added to the wine and follows the same approach taken in drafting the Distilled Spirits Regulations to properly classify alcoholic beverages like flavored malt beverages.

The excise tax on beer and wine is generally paid by manufacturers, wine growers, and importers. Sellers of beer and wine must pay the excise tax if the tax was not paid by the manufacturers, winegrowers, or importers. In general, the excise tax on distilled spirits is collected from retailers, by distilled spirits wholesalers, at the time of sale to the retailer.

The next step is a 45 day comment period which will lead to a public hearing in front of the Board in May.