If you have been paying attention to what is happening in the brewing industry in Pennsylvania, you’ve noticed that there has been much discussion about the imposition of sales tax on beer manufactured in Pennsylvania and how that might affect consumer prices. There was a lot of uncertainty about how new regulations from the Department of Revenue will be instituted and how sales tax will be charged on beer produced within the state. You may have read my post Sales Tax on Breweries back in the fall when we knew that it was coming but nobody was certain how it would ultimately be implemented. Now we have some guidance. As part of the 2019-2020 budget for Pennsylvania, the General Assembly was able to include some language that clarifies from a legislative standpoint (as opposed to internal regulations that the Department of Revenue was applying) how sales tax will be charged.
The issue that made this particularly difficult was the potential for inconsistencies in the amount of tax imposed, based on how the beer was sold. For instance, in my previous post, I used the example of a $40 keg of beer that is sold at wholesale. For a restaurant or other brewery buying that keg at wholesale, sales tax is paid and remitted to the Department of Revenue based on the $40 wholesale price, so $2.40 would be remitted for sales taxes. Contrast that with the same keg of beer that is sold on site by the brewery that produced it. If that brewery does not wholesale beer, under the guidelines issued by the Department of Revenue, the brewery would have to impose sales tax on each pint of beer sold from that keg. Assuming approximately 120 pints of beer are sold from that keg and each pint is sold for $5.00, the brewery would have to charge and remit a total of $36.00 in sales tax. With this new legislation, there should now be some consistency in terms of how sales tax is charged, regardless of whether a brewery wholesales its beer or whether they sell it entirely at their own property.
Moving forward, breweries in Pennsylvania will be required to remit tax on 25% of all of their sales, both on premises and off-premise. The 25% threshold used was the legislature’s best attempt after receiving some input from industry trade groups, to impose a consistent tax considering that some beers will be sold at a wholesale value and others are sold at retail value. Using my example above, under this new legislation, the $40 keg is still taxed the same way if sold at wholesale ($2.40 remitted for sales tax). However, for the brewery that does not wholesale its beer and only sells it onsite, there is a significant reduction in the amount of sales tax they must remit. That same keg in the example above containing 120 pints of beer that are sold at $5.00 each, would only generate $9.00 in sales tax, a far better result than before. While it is not perfect and still allows for some inconsistency, it is a far better result than what the Department was intending to impose previously and likely allows breweries to better manage that added cost without passing it entirely on to the consumer.
It is likely that the Department of Revenue will issue further guidance for the application of this new legislation but for now, it appears that brewers in Pennsylvania have dodged a bit of a bullet, especially those that sell most or all of their product in-house.
Aaron Zeamer is an attorney at Russell, Krafft & Gruber, LLP, in Lancaster, Pennsylvania. He practices in a variety of areas including Business Law and Liquor License matters. Aaron works frequently with commercial real estate agents, brokers, restaurant and bar owners, breweries, distilleries, and wineries to facilitate the sale and transfer of PA liquor licenses.