Sales & Use Tax for Georgia Breweries: Changes Effective September 1, 2017

Patrick Tuley

Tax Partner

August 31, 2017

As we all know, September 1, 2017 will be a day in the history books for the craft brewing industry in Georgia. With the passage of SB85 a lot will change for the industry, and of course that also includes changes to the way breweries will account for their taxes.

The State of Georgia (and applicable counties) levies a “sales tax” on all sales or rentals of tangible personal property. The sales tax base in Georgia includes the admission price for brewery tours; so, prior to September 1, many breweries are subject to sales tax on the admission price of tours.  If you were to charge for tours after September 1, the admission price is still subject to sales tax. Use tax is charged against the “use” of tangible personal property that would otherwise be considered a taxable sale.  Prior to September 1, 2017, the Georgia Department of Revenue specifically included the purchase value of beer given away as a “souvenir” as subject to use tax. 

Under the amendments enacted by 2017-2018 Senate Bill 85, effective September 1, 2017, breweries will be allowed to sell beer directly to consumers. As a result, sales tax will be due on each unit of beer sold to a consumer.  Use tax would only be levied on beer or merchandise that is given away in the normal course of business. 

LAWS & PRACTICES PRIOR TO SEPTEMBER 1, 2017:

In General 

A “sale” is generally defined as any transfer of title or possession, rental, or lease of tangible personal property for consideration[i].  It is important to note that to fit this definition, the property in question must be “tangible” and “personal” (i.e. physical property that is not real estate).  Services rendered for consideration are exempted from Georgia sales tax unless specifically designated as taxable.  Some other types of sales that are generally considered taxable are admissions, transportation, and games & amusements.

The purchaser is charged the sales tax as part of their purchase; the basis for the tax is on the “sales price” of the purchase, which is generally defined as any consideration including cash, credit, property and services[ii].  When a taxable sale is made, it is the responsibility of the seller to collect the appropriate amount of sales tax and remit that amount to the state.  In practice, Georgia taxpayers must charge and collect sales tax at the state and county rates and pay those amounts directly to Georgia, who will then remit the appropriate amount to the relevant counties.  Note that Georgia does not levy sales tax on purchases where delivery is made to a customer that is located outside of Georgia.  Also note that resellers of tangible personal property can be exempted from sales tax, but are required to obtain a certificate of exemption from the state.

Use tax is levied on the use of tangible personal property that would otherwise be subject to sale tax. For example, if a business purchases merchandise for resale to its customers, but gives away a portion of that merchandise as a souvenir, use tax (but not sales tax) is charged to the business against the theoretical purchase price of the merchandise.  In this instance, the business is being charged for the “use” of the merchandise. 

Tours 

Prior to September 1, 2017, Georgia breweries are not permitted to sell alcoholic beverages directly to patrons. Instead, breweries are permitted, upon grant of a permit from the Commissioner to do so, to conduct educational and promotional tours on the licensed premises of the taxpayer free of charge or for a fee.  As part of the “tour” the brewery is permitted to include (1) free souvenirs, (2) free food, and (3) free tastings[iii].  The brewery is required to pay use tax on any free samples and souvenirs provided to tour attendees and must collect and remit all sales taxes on facility tour admission fees[iv].

To illustrate, consider the following example: XYZ Brewing Company charges $15 for a brewery tour, which includes a $4 souvenir glass and 36 ounces of beer. During the month of July 2017, XYZ sells 1,300 tours.  Assume the combined Georgia and county sales tax rate is 7%.  In total, XYZ should have collected $20,865 of revenue from the sale of tours, of which $19,500 (1,300 tour admissions @ $15 per tour) is revenue to the brewery and $1,365 ($19,500 × 7%) is sales tax charged.

Additionally, separate from the tour transaction, the brewery is responsible for remitting use tax on the beer that is given away as part of the tour. The value of the beer that would have been charged to a distributor is $200 per barrel.  Assuming that 46,800 ounces of beer are given away through brewery tours in July, the theoretical value of the beer given away is roughly $2,360 (46,800 oz. ÷ 3,968 oz. per barrel × $200 per barrel), then use tax charged against the beer given away is $165 ($2,360 × 7% sales tax rate).  In total, XYZ Brewing Company is required to remit $1,530 of sales and use tax to Georgia for the month of July. 

CHANGES EFFECTIVE SEPTEMBER 1, 2017: 

With the enactment of the 2017-2018 Senate Bill No. 85, breweries will be permitted to sell a limited amount of beer directly to consumers for consumption on the brewery premises, as well as a limited amount for consumption off of the premises. For the purposes of sales & use tax, beer is tangible personal property that will purchased by consumers for consideration; therefore, tax is levied on the purchase price of each unit of beer sold.  Because the beer is no longer being given away as a souvenir, a separate use tax is no longer charged.  Additionally, glassware is no longer subject to sales or use tax unless it is sold or given away in the normal course of business.  Using the same facts from the previous example and assuming a sales price of $5 per 12 oz. glass of beer, XYZ Brewing Company will still be required to charge the same amount of sales tax to the customer and remit those taxes, but will not be liable for the additional $165 of use tax. 

OTHER RELEVANT CONSIDERATIONS FOR BREWERIES:

Public Entertainment and Classes 

Sales of tickets for the admission to a place of amusement or entertainment are taxable for the purposes of sales tax[v].  If a brewery charges a price for a customer to attend an event at the brewery, such as a musical event or educational art class, the brewery must charge sales tax to the purchaser of the admission to the event.

Brewery Event Space Rentals 

Sales tax is not levied on the rental of a brewery to a customer for use as a venue for a special event, provided that the object being “rented” is real property (i.e. four walls and a roof). If the rental fee charged by the brewery includes the use of tables, chairs, decorations or any other tangible personal property, that relative rental value of that property is subject to sales tax.

Audit Considerations 

It is important for breweries to specifically identify within their point-of-sale (POS) systems the price being charged on each component of a transaction. For example, if a tour sale is detailed as “Brewery Tour” at a price of $15 per tour in XYZ Brewing Company’s system, but the price of the tour includes glassware that would be otherwise valued at $4 per glass, the transaction could be easily re-characterized as a $15 tour with a free gift valued at $4.  In other words, under audit, it could be argued that XYZ owes sales tax on each $15 tour sale, as well as unpaid use tax on each $4 glass that was given away as part of the sale.

There are many other sales & use tax issues outside of these new law changes to consider. Contact Patrick Tuley (@TheThirstyCPA) at ptuley@pkm.com or (404) 420-5670 with any questions or concerns.

[1] Ga. Code Ann. Sec. 48-8-2(33)(A)

[1] Ga. Code Ann. Sec. 48-8-2(34)(A)

[1] Ga. Code Ann. Sec. 3-5-38(b)(1)

[1] Ga. Code Ann. Sec. 3-5-38(b)(5)

[1] Ga. Code Ann. Sec. 48-8-2(31)(C)

 

 

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