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Wine Industry Manufacturing Activities

RetailWhen you take tangible personal property (grapes) and, by applying labor or skill manually or by machinery, turn the grapes into a new and different product (wine) that will be sold, you are conducting a manufacturing activity. The manufacturing activities section of this guide is only intended to address the taxability of those manufacturing activities that may occur in the process of wine making.

This guide also details various B&O tax exemptions and credits, and sales and use tax deferral and exemption programs that are provided for wine industry manufacturers in Washington.


Taxability of Manufacturing and Related Activities by Wineries Other taxes Purchases of Goods by Manufacturers

Manufacturing Tax Incentives

Manufacturer’s Sales and Use Tax Exemption for Machinery and Equipment (M&E)

Rural County B&O Tax Credit for New Employees High Unemployment County Sales and Use Tax Deferral Program

Wine Industry Manufacturing Activities

Who is a "manufacturer?"

A “manufacturer” is a person who, either directly or by contracting with others for the necessary labor or mechanical services, manufactures for sale or for commercial or industrial use from his or her own materials or ingredients any articles, substances, or commodities. RCW 82.04.110

What does it mean "to manufacture?"

“To manufacture” embraces all commercial or industrial activities where labor or skill is applied, by hand or machinery, to materials so that the result is a new, different, or useful substance or article of tangible personal property that is produced for sale or commercial or industrial use. RCW 82.04.120

Taxability of Manufacturing and Related Activities by Wineries

Wine manufactured from fresh fruit

Special B&O tax exemptions are available for wine manufacturers that manufacture wine from fresh fruit.

What the exemptions provide
RCW 82.04.4266 provides a B&O tax exemption for the following tax classifications and activities:

  • Manufacturing B&O tax - the value of products sold by fresh fruit or vegetable manufacturers, and
  • Wholesaling B&O tax - products manufactured and sold by the manufacturer at wholesale to a buyer that transports the product outside Washington in the normal course of business.

These exemptions expire on July 1, 2025. When they expire, they will be replaced with a reduced B&O tax rate of 0.138 percent (RCW 82.04.260 (1)).

Special B&O tax classifications and deductions have been added to My Account (e-file) for reporting income from the manufacturing of fresh fruit products. For information on how to report and other requirements, see our Special Notice, Fresh Fruit or Vegetable Manufacturers B&O Tax Exemptions Extended – Change in Filing Requirements.

Wine manufactured from other than fresh fruit and other manufactured products

If the business manufactures products not produced from fresh fruit, including wine made from purchased fruit juice or slurry, that income should be reported under the Manufacturing B&O tax classification or another manufacturing classification, if appropriate. The income must also be reported under the Wholesaling or Retailing B&O tax classification. For wholesale sales, you must receive a reseller permit or other approved exemption certificate from the buyer to document the wholesale nature of the transaction. For more information, see our Manufacturing Industry Tax Guide and WAC 458-20-136.

Retail sales of wine and other products

Retail sales of wine and other tangible goods delivered to consumers in Washington are subject to the B&O tax under the Retailingclassification. Such sales are also subject to retail sales tax, which is discussed in detail in the “Sales of Goods and Services” section of this guide.

Marijuana, useable marijuana, and marijuana-infused products, including marijuana concentrates are not fresh fruits:

Marijuana, useable marijuana, and marijuana-infused products, including marijuana concentrates, are not fresh fruits for purposes of the B&O tax. This means marijuana processors do not qualify for the B&O tax exemptions or preferential rates for businesses that process fresh fruits.  RCW 82.04.4266.


Common B&O tax credits and deductions:


  • If you manufacture wine in Washington from other than fresh fruit you may qualify for the multiple activities tax credit (MATC). The MATC is a B&O tax credit that is available to certain manufacturers that file under more than one B&O classification on the sale of the same product. A credit is allowed so that B&O tax is paid only once.

    To take the credit, you must complete the MATC under Credits in E-file.

    To the extent that your winery is exempt from the manufacturing B&O tax under RCW 82.04.4266 (1)(a), you are not required to complete a MATC form.

  • Rural county B&O tax credit for new employees in manufacturing and research & development: See under “Manufacturing Tax Incentives.”


  • Interstate/foreign sales B&O tax deduction: Amounts from wholesale or retail sales of wine delivered to the buyer outside of Washington that have been reported in the gross sales figure reported on the tax return may be deducted from the taxable amount reported for B&O tax as “Intestate and Foreign Sales.” The seller must maintain proper documentation to prove the product was delivered out-of-state. (See WAC 458-20-193(203) for documentation requirements.)


Other taxes

Litter tax

Generally, litter tax is due when you manufacture, or make wholesale and/or retail sales, of wine. (See chapter 82.19 RCW and WAC 458-20-243.) However, if the wine is transported to the purchaser outside of Washington litter tax does not apply to the sale.

Litter tax is assessed at a rate of .015 percent and is based on the selling price or, if no charge is made (such as wine used in a tasting room or donated to a charity) on the comparable retail selling price. The tax is reported on each Department of Revenue tax return.

Purchases of Goods by Manufacturers

Purchases subject to sales or use tax

Generally, tangible personal property sold to, purchased or rented by manufacturers is subject to retail sales tax, unless specifically exempt by law. Taxable examples include:

  • Office equipment and supplies (i.e., desks, office computers, envelopes)
  • Hand tools (i.e., hammers, wrenches, rakes, drills)
  • Disposable products or products that last less than one year (i.e., disposable liners or filters)
  • Items not used directly in the manufacturing process (i.e., boots, garbage cans, cleaning equipment)

Also, certain retail services sold to or purchased by manufacturers are subject to retail sales tax or use tax, unless specifically exempt by law. Taxable examples include:

  • Construction of buildings
  • Installation of non exempt fixtures, machinery, or equipment
  • Repair of non-exempt buildings, machinery, or equipment

If you are not charged sales tax at the time of sale, you must pay use tax directly to the Department on the purchase price of taxable items, including any shipping or delivery costs. You may report and pay use tax on your Department of Revenue tax return.

The law provides Washington manufacturers with specific sales/use tax exemption and deferral programs. These programs are discussed under the “Manufacturing Tax Incentives” section, and include:

  • Sales/use tax exemption for machinery and equipment used directly in the manufacturing process, installation and repair parts and services for qualifying machinery and equipment;
  • Sales/use tax deferral on qualified construction and equipment costs for wine manufacturers located in rural counties, Community Empowerment Zones (CEZs) and counties containing CEZs.

Manufacturing Tax Incentives

Manufacturer’s Sales and Use Tax Exemption for Machinery and Equipment (M&E)

This sales and use tax exemption applies to purchases or use of qualifying machinery and equipment (M&E) by a manufacturer (winery) where the M&E is used directly in the manufacturing /wine making operation. RCW 82.08.02565, RCW 82.12.02565, and WAC 458-20-13601

Who qualifies for the sales/use tax exemption?

  • Manufacturers that manufacture wine for sale or processors for hire that manufacture wine that will be sold by their customer.
    • Note: RCW 82.04.130 excludes "the growing, harvesting, or producing of agricultural products; or packing of agricultural products" from the definition of manufacturing. This precise exclusion from the definition of "manufacturing," plus the fact that the M&E exemption is limited to manufacturing, means that growers/vintners are not eligible for the M&E exemption for growing and harvesting activities. However, if you both grow grapes and manufacture them into wine, M&E used in your manufacturing activities at the manufacturing site qualify for exemption.

What is covered by the sales/use tax exemption?

  • Machinery and equipment that is used directly by a manufacturer or processor for hire in a manufacturing, processing for hire, or research and development operation.
  • Charges for parts, labor, and services used in installing, repairing, cleaning, altering, or improving qualifying M&E.

What machinery & equipment qualify for exemption?

  • Industrial fixtures: an item attached to the building or to land that becomes part of the real estate and is classified as real property, not tangible personal property. Examples: craneways, certain concrete slabs, tanks
  • Devices: an item that is not attached to a building or site. Examples: forklifts, pallet jacks, destemmers, crushers, presses, sorting machines, free standing shelving, ladders, wine barrels
  • Support facilities: a part of a building or structure or improvement used to contain or steady an industrial fixture or device. A support facility must be specially designed and necessary for the industrial fixture or device and must perform a function beyond just being a building, structure, or improvement. Examples: special concrete pads needed for a device
  • Pollution control equipment: equipment installed and used in a qualifying manufacturing operation to prevent air or water pollution or contamination for the operation.

Manufacturer’s Sales and Use Tax Exemption for Machinery and Equipment (M&E) Continued...

What machinery & equipment doesn’t qualify for exemption?

  • Hand powered tools
    • Example: screw drivers, hammers, clamps, tape measures
  • Items (including repair and replacement parts) with a useful life of less than one year
    • Example: disposable liners or filters
  • Buildings and parts of buildings that merely provide workspace for people, or provide shelter or store tangible personal property or machinery and equipment.
    • Examples: Office space, closets, washrooms, tasting rooms
  • Building fixtures that aren’t integral to the manufacturing operation and are permanently affixed to and become a physical part of a building.
    • Examples: fire sprinklers, building electrical systems, washroom fixtures, shelving in tasting room
  • Items that aren’t “used directly” in the manufacturing process. (See below.)
  • Items that don’t meet the “majority use” criteria. (See below.)

What does “used directly” mean?

Only M&E that meets the “used directly” criteria qualifies for the sales/use tax exemption. Qualifying M&E may meet any of the following criteria:

  • Acts upon or interacts with the grapes or wine being manufactured.
    • Examples: destemmer, top fermenter, crusher wine barrels
  • Conveys, transports, handles, or temporarily stores the grapes or wine being manufactured.
    • Examples: wheelbarrows, handcarts, storage racks, forklifts, tanks, vats, piping, wine barrels, and concrete storage pads
    • Not qualifying under this criterion: Floor space in buildings; items used to package, ship, or support or brace the wine during transport
  • Controls, guides, measures, verifies, aligns, regulates, or tests wine at or away from the manufacturing site.
    • Examples: graduated cylinders, chemical testing equipment
  • Provides physical support for or access to the wine.
    • Examples: catwalks in between vats; scaffolding around tanks; braces under vats; ladders near controls
    • Not qualifying under these criteria: M&E used to access the building, provide work space for people or space for items, such as doors or stairways
  • Produces power for or lubricates the machinery and equipment.
    • Examples: a generator that provides power to destemmer; lubricating devices such as hoses, oil guns, and pumps, whether or not attached to the machinery and equipment
  • Produces another item of tangible personal property for use in the manufacturing operation.
    • Examples: printer that makes bottle labels, embossing press for labels, caps
  • Places the wine in the bottle, container, or package, in which it is normally sold or transported.
    • Example: bottling equipment
  • Is integral to research and development as defined in RCW 82.63.010.

Manufacturer’s Sales and Use Tax Exemption for Machinery and Equipment (M&E) Continued...

What is the “majority use threshold”?

  • When you use machinery and equipment directly in a qualifying manufacturing activity and also in nonqualifying activities, the M&E is eligible for exemption only if the qualifying use meets the majority use requirement, as detailed in WAC 458-20-13601.
  • Typically, the majority use threshold is determined on a case-by-case basis, looking at the machinery and equipment’s use during a calendar year using any of the following:
    • Time
    • Value
    • Volume
    • Other comparable comparison measurements

    • Examples: A forklift that is used at the manufacturing site to lift barrels of wine 75% of the year and is used in the non-qualifying farming operation to lift crates of grapes onto trucks the remaining 25% of the time meets the majority use threshold. A pick-up truck does not meet the threshold if it is used at the manufacturing site to move grape bins around the manufacturing site for 2 weeks of the year and used for general transportation off the manufacturing site the remaining 50 weeks.
  • See WAC 458-20-13601 for a more in-depth discussion of the exemption and qualifying criteria.

Rural County B&O Tax Credit for New Employees

This incentive program provides B&O tax credits for qualifying employers (including wine manufacturers), located in rural counties or community empowerment zones (CEZs). To be eligible, current businesses must increase their workforce by 15%, new businesses receive a credit for all new positions at the facility.

Who qualifies for the B&O tax credit?

  • Manufacturers that locate or expand their operations in rural counties or CEZs.
    • The Office of Financial Management determines yearly which counties qualify as rural and publishes the list of rural counties. CEZs are located in: Bremerton, Duwamish, Spokane, Tacoma, White Center, and Yakima. Links to the maps are located on the bottom of our Tax Incentive’s page.

How much is the B&O tax credit?

  • $2,000 for each qualified employment position with annual wages/benefits less than or equal to $40,000; or
  • $4,000 for each qualified employment position with annual wages/benefits greater than $40,000.

Is there a limit on how much credit I can take?

  • No, not on individual employers. However, the state-wide cap for all credits under this program is $7.5 million per fiscal year (July 1 through June 30). Any credits disallowed because the state-wide credit has been met can be carried over and taken in the next fiscal year.

What are the reporting/documentation requirements?

  • The number of average full-time qualified employment positions at the manufacturing facility (including seasonal or temporarily vacant positions) must be at least 15% greater in the four consecutive calendar quarters during which the credit is sought than the number of positions at the same facility in the immediately preceding four consecutive calendar quarters.

All positions created by a new business will qualify for the credit for the four consecutive quarters following the quarter in which the positions are filled.

How do I take the B&O tax credit?

  • Once your program application is approved, the Department will send you an Employee Credit Certificate. The credit will also appear in My Account (e-file) under “Credits and Tax Incentives.” Once the positions have been filled, you may take a credit against your B&O tax liability on credit section of your excise tax return. The credit cannot exceed the B&O tax owed on the tax return. The credit may be carried forward until used.

For more details on the B&O tax credit, see our brochure, Rural County Business & Occupation Tax Credit for New Employees and our Tax Incentive Programs page.

High Unemployment County Sales and Use Tax Deferral Program

The High Unemployment County Sales/Use Tax Deferral Program grants a deferral of sales/use tax on purchases of qualifying machinery, equipment and construction to approved businesses that are:

  • located in qualifying counties or Community Empowerment Zones (CEZs), and
  • engaged in any of the activities listed below:
    • manufacturing
    • research and development laboratories
    • commercial testing facilities
    • vegetable seed conditioning

The Program allows for the waiver of the deferred sales and/or use tax when all program requirements have been met and verified. To receive the waiver, businesses must:

  • Engage in qualified activities during the year the Department certifies the investment project as operationally complete, and the following seven years.
  • Electronically file an annual tax incentive survey covering each calendar year by April 30 of the following year.
  • Have all purchases verified as eligible by an auditor from the Department of Revenue.
  • Meet employment requirements if the business located in a CEZ.

This program expires on July 1, 2020.

For additional information, visit our Tax Incentives page.