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Wine Industry Sales of Goods and Services

RetailThe final step in the wine making process is selling the wine product produced.   Wine may be sold on a wholesale or retail basis.  It may be delivered within the state or to a customer outside of Washington.  Wineries may provide samples of their product for a fee or free of charge to potential customers, or may donate their product to various causes.  Wineries are also increasingly involved in providing or participating in wine maker dinners, catered events, and other sales of prepared food, goods, or services in addition to wine.  

This guide discusses your tax obligations for these and other retail and service activities.  In addition, it explains the sales tax sourcing requirements that took effect July 1, 2008, as part of Washington’s adoption of destination-based sales tax sourcing.


Contents

What is a “retail sale?”
What is a “wholesale sale?”
Sales of Goods and Services by Wineries

B&O tax

Retail Sales Tax:

Common sales tax exemptions:

Paying tax on business purchases

Specific Topics for Wineries

Wine Industry Sales of Goods and Services

What is a “retail sale?”
A "sale at retail" or "retail sale" is a sale of tangible personal property (including articles that you produce or manufacture) to a business or consumer. Many services and other activities are classified as retail sales in the law, such as sales of meals, sales of lodging, and construction, repair, or installation services performed to buildings, land, or tangible personal property. RCW 82.04.050

What is a “wholesale sale?”
Generally, a “sale at wholesale” or “wholesale sale” means a sale of tangible personal property (including articles you produce or manufacture) to a business or person who will resell the articles in the regular course of business or incorporate the article into another product that will be sold. RCW 82.04.060

Sales of Goods and Services by Wineries

B&O tax:

Wholesaling

Sales of wine or other tangible personal property to persons that will resell the product in the regular course of business are wholesale transactions. When delivered to the buyer in Washington, the gross income from such sales is subject to B&O tax under the wholesaling classification. You must receive a reseller permit from the buyer to document the wholesale nature of the sale. You are required to keep the documentation for up to five years after the sale. WAC 458-20-102

Note: Effective January 1, 2010, the resale certificate was replaced with a reseller permit issued by the Department of Revenue. Reseller permits are free and are issued to businesses that make wholesale purchases. The permits allow businesses to purchase items or services for resale without paying retail sales tax.

B&O deduction

Wholesale sales delivered out-of-state (ID 0304)
Wholesale sales of wine or other tangible personal property that are delivered to the buyer outside of Washington qualify for deduction and are not subject to B&O tax. The income from such sales must be included in the amount reported for wholesale sales on your tax return, but you should deduct the sale amounts that are delivered out-of-state under the “interstate and foreign sales” deduction classification. You must still receive a reseller permit from the buyer to keep in your records.

Retailing

If you make sales of wine or tangible personal property to consumers, you are subject to B&O tax under the retailing classification on the gross sales. Generally, sales of wine or other alcoholic beverages, prepackaged food items, prepared food items, and other goods are reported under the retailing B&O tax classification.

In addition, if you provide retail services to consumers, income from such services is subject to retailing B&O tax. Examples include serving prepared food, catering, renting tangible personal property, and providing lodging.

B&O deduction

Retail sales or services delivered/performed out-of-state (ID 0204)
Retail sales of wine or other tangible personal property that are delivered to the buyer outside of Washington or retail services that are performed outside of Washington qualify for deduction and are not subject to B&O tax. The income from such sales must be included in the gross amount you report for retailing B&O tax on your tax return, but you should deduct the amounts that are delivered out-of-state under the “interstate and foreign sales” deduction classification. The amount is also deducted from your gross sales for retail sales tax (see below).

Sales of Goods and Services by Wineries

Retail Sales Tax

Collecting sales tax from consumers

You must collect retail sales tax on all sales that are subject to the retailing classification of the B&O tax, unless the law provides a specific exemption. Retail sales tax is comprised of a state (6.5 percent) and local rate (varying).

You are liable for remitting the correct amount of sales tax, even if you have under-collected or not collected sales tax from your customer.

Sales tax is collected on the selling price of the goods, including any additional charges added, such as shipping or delivery fees or any amount that is separately stated on the invoice.

You must state the sales tax amount separately on all sales invoices or other sales documents. The tax cannot be included in a lump sum price. When sales tax is not separately stated, it is presumed that the tax was not collected by the seller or paid by the buyer.

Items commonly sold by wineries upon which sales tax must be charged include, but are not limited to:

  • Wine
  • Glassware and wine accessories (foil and bottle openers, wine charms)
  • Clothing
  • Books, cards, posters

Sales of pre-packaged foods are generally exempt from sales tax. (See “Common sales tax exemptions” for additional details.) However, the income remains subject to retailing B&O tax. Examples include:

  • Chocolates, nuts, dried fruit
  • Crackers, cookies
  • Mustards, spreads

Determining the sales tax rate to charge

When you make retail sales, you must collect both the state and local portions of the sales tax. Local sales tax is reported on your excise tax return and must be coded according to where the goods were received by the buyer. The sales tax coding on the tax return determines how the Department distributes local taxes to local city and county governments throughout the state. Because local governments depend on these taxes to fund various services, it is important that you collect and report sales tax properly.

As of July 1, 2008, you will determine the correct sales tax rate for retail sales by the destination of the sale – that is, the location where the buyer takes delivery of the goods.

When the buyer receives the goods at the point of sale, you will charge the sales tax rate for the location where the sale is made.

For sales where you ship the goods to the buyer, you must charge the sales tax rate for the location where the goods are shipped – the destination of the sale.

Examples:

  • Dave purchases and takes possession of a case of wine at the winery location in unincorporated Benton County. The winery will charge Dave the sales tax for unincorporated Benton County, where the winery is located and where he took delivery of the wine.
  • Lori is a wine club member of ABC winery. The winery ships two bottles of wine every 4 months to her home in Tacoma. The winery will charge Lori the sales tax rate for her Tacoma home, since this is the destination of the sale and where she takes delivery of the wine.

Retail Sales Tax (continued)

Tools:
Several tools are available on our web site to verify the correct location codes and sales tax rates for your sales, including:

  • Tax rate lookup tool: A tool where you type in the address and the tool displays the correct tax rate and location code.
  • Excel workbook: A downloadable tax calculator workbook using Microsoft Excel that displays tax rates and location codes, calculates totals, and summarizes sales by city or county without an online connection.
  • Rate flyer in Excel or Quickbooks file: An Excel or Quickbooks file with sales tax flyer information
  • Real-time Automated Lookup: Places a real-time look up tool directly into your system (programming required.)
  • Downloadable databases: Databases you can download to create your own lookup tools.
  • Customer database conversion: A service where a business with a consistent customer base sends a file of addresses and receives correct location codes and tax rates in return.

Other local taxes to consider - Regional Transit Authority (RTA)

The RTA tax is a 0.9 percent tax that is collected in addition to state and local retail sales tax on sales made in portions of King, Pierce, and Snohomish counties.

Common sales tax exemptions:

  • Sales for resale: When a customer provides you with a reseller permit, you do not collect sales tax on the sale transaction. The Reseller Permit documents that the buyer plans to resell the products in the regular course of business. You must maintain the documentation in your records for up to five years. The sale is reported on the tax return under the wholesaling B&O tax classification. WAC 458-20-102

Note: Effective January 1, 2010, the resale certificate was replaced with a reseller permit issued by the Department of Revenue. Reseller permits are free and are issued to businesses that make wholesale purchases. The permits allow businesses to purchase items or services for resale without paying retail sales tax. For more information, see our Reseller Permit page.

  • Sales of prepackaged foods (ID 0122): Generally, food products that are sealed, canned, boxed, bottled, or otherwise packed and sealed by someone other than the seller are exempt from sales tax as food products. RCW 82.08.0293 and WAC 458-20-244


    You must include the amounts from such sales in your gross income reported for retailing B&O tax and retail sales tax, but may take the “Exempt Food Sales” deduction (0122) for retail sales tax. The income remains subject to retailing B&O tax. Examples include:

    • Chocolates, nuts, dried fruit
    • Crackers, cookies
    • Mustards, spreads

    This exemption does not apply to:

    • Alcoholic beverages
    • Drinks that are sweetened, contain 50% or less fruit or vegetable juice, or contain no milk or milk substitutes
    • Prepared foods – foods that meet the following criteria:
      • Food sold with eating utensils provided by the seller.
        • Utensils include plates, knives, forks, spoons, glasses, cups, napkins, or straws
        • Utensils do not include containers or packaging used to carry the food, such as a container for potato salad
      • Food and food ingredients sold in a heated state or heated by the seller, except bakery items.
        • Examples: grilled sandwiches, soups
      • Two or more food ingredients mixed or combined by the seller for sales as a single item, unless the product:
        • Is only cut, repackaged, or pasteurized by the seller
        • Contains raw eggs, fish, meat, poultry, and food containing these raw foods that require cooking by the consumer as recommended by the FDA to prevent food borne illness.
      • If sold without eating utensils provided by the seller, prepared foods do not include:
        • Bakery items
        • Food sold by weight or volume as a single item in an unheated state
        • Food sold by a food manufacturer per NAICS sector 311, except for bakeries.

Common sales tax exemptions: (continued)

  • Sales delivered out-of-state (IDs 0104 & 0204): Sales of wine and other tangible goods to consumers that are delivered outside of Washington are exempt from Washington taxation. For sales delivered directly to the buyer outside the state, include the amounts from such sales in your gross income reported on your excise tax return for retailing B&O tax and retail sales tax, then take “Interstate & Foreign Sales” deductions (0104 & 0204) for retail sales tax and retailing B&O tax in the amount of the sales.

    You must keep documentation to prove the product was delivered out-of-state. See WAC 458-20-193 for documentation requirements.
  • Sales to qualifying nonresidents (ID 0123): Sales of wine and other tangible goods to residents of certain qualifying states, US possessions, or Canadian provinces for use outside this state may be exempt from sales tax. The exemption is available only to residents of states, US possessions, or Canadian provinces when the jurisdiction does not impose a retail sales tax of three percent or more. You are not required to make tax-exempt sales to nonresidents – the exemption is at the seller’s discretion. However, if you do make such sales, you must examine documents that prove the buyer’s residency and keep certain information from the documents in your records.

    See Excise Tax Advisory (ETA) 3054.2011 (pdf) for more information and seller’s instructions for documentation.
  • Eligible nonresidents: As of July 1, 2011, only residents of the following states, possessions, and provinces of Canada qualify: Alaska, American Samoa, Alberta, Colorado, Delaware, Montana, New Hampshire, Northwest Territories, Nunavut, Oregon, and Yukon Territory.

Paying tax on business purchases

Retail sales tax

In addition to collecting sales tax on sales of taxable goods, you also must pay sales tax on items or retail services that you purchase for consumption or use in your winery business. Common examples include:

  • Office equipment and furnishings
  • Paper, promotional materials
  • Tasting room equipment and furnishings
  • Security system, landscaping
  • Construction, repair, maintenance services for office/tasting rooms
  • Cleaning supplies
  • Glassware, wine openers, etc., used in tasting room

Common sales tax purchase exemptions:

  • Packing materials: If you sell products on a wholesale or retail basis, you can purchase certain packing/packaging items without paying sales tax by supplying a reseller permit to the vendor. Items used to package goods for sales are considered part of the product sold. WAC 458-20-115 Common examples include:
    • Paper bags
    • Wrapping paper
    • Pricing labels
    • Wine boxes or carrying cases
  • Purchases for resale: You should provide a reseller permit to purchase items that you will resell in the regular course of your retail winery operations. The Reseller Permit allows you to purchase items without paying sales tax when the items are for resale without any intervening use. Common examples include:
    • Clothing, giftware
    • Pre-packaged food and beverages
    • Maps, posters
    • Artwork, craft wares

Note: Effective January 1, 2010, the resale certificate was replaced with a reseller permit issued by the Department of Revenue. Reseller permits are free and are issued to businesses that make wholesale purchases. The permits allow businesses to purchase items or services for resale without paying retail sales tax. For more information please see our Reseller Permit page.

Paying tax on business purchases (continued)

Use tax

Use tax is a tax on the use of goods and certain services in Washington when sales tax was not paid at the time of purchase. Goods used in this state are subject to either sales tax or use tax, but not both.

Use tax is based on the value of the goods or services purchases, and includes charges for labor, materials, freight, handling, or any other amount paid or accrued, when separately stated on the invoice. Common examples of when use tax is due include:

  • Mail order, telephone, or Internet purchases from businesses or people with no presence in Washington.
  • Goods you purchase with a Reseller Permit and then use or consume yourself.
  • Tangible personal property you acquire with a purchase of real property.
  • Goods you purchase in a state with no sales tax or a tax rate lower than Washington’s.


Use tax applies to wine given away free of charge (such as wine samples provided in a tasting room). The taxable amount is based on the comparable retail selling price of the same or similar products.

Paying tax on business purchases (continued)

Litter tax

Generally, litter tax is due when you manufacture, or make wholesale and/or retail sales, of wine in Washington. See chapter 82.19 RCW and WAC 458-20-243.

However, certain retail sales are exempted from litter tax.

  • Wine sales delivered by the seller to the buyer at a location outside of the state are not subject to litter tax, as they are interstate or foreign sales. WAC 458-20-193
  • Sales of beverages (such as wine) solely for immediate consumption indoors at the seller's place of business or at a deck or patio at the seller's place of business, or indoors at an eating area that is contiguous to the seller's place of business are exempt from litter tax. RCW 82.19.050

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 donated to a charity) on the comparable retail selling price. The tax is reported on each Department of Revenue tax return.

Specific Topics for Wineries

Wine used in wine tastings/wine samples

When wine is pulled from inventory and used for wine pours/tastings and a tasting fee is charged, this is considered a retail sale. The tasters are considered the consumers and the tasting fees are considered to be the sale amount/payment received for the wine.

  • Sales tax included in tasting fee:  Generally, sales tax is required to be separately stated.  However, wineries that charge a tasting fee may advertise the posted tasting fee as including sales tax.  The words "tax included" should be stated immediately following the advertised price in print size at least half as large as the advertised price print size, unless the advertised price is one in a listed series.  WAC 458-20-107

You will report gross sales for retailing B&O tax and retail sales tax on the excise tax return based on the total tasting fees collected with the appropriate sales tax amount “backed out.”

  • Backing out the sales tax amount: The total amount received from wine tasting fees at a winery is $300. The applicable sales tax rate for the winery location is 7.9 percent. The gross taxable amount subject to sales tax and retailing B&O tax is $270.04 ($300/1.079 = $270.04).

When wine is pulled from inventory and used for wine pours/tastings and there is no tasting fee charged, the winery owes use tax based on the retail value of that particular bottle of wine. The retail value is based on the retail selling price of a like bottle of wine. The winery is considered the consumer of the wine in such cases, since it is using wine to promote its product.

So, depending on whether or not you charge tasting fees, you will either report retail sales tax and retailing B&O tax or use tax (calculated on the retail selling price of the bottle).

This could lead to a different basis for tax reporting on the same bottle of wine.

  • Example: If you pull a bottle of estate wine (retail value $70) from inventory that is used for tastings in your tasting room (no charge), use tax will be calculated on the $70 retail value. If, however, you provide tastings from this bottle for $2 a taste and the bottle yields 25 tastes, sales tax will be backed out of a $50 amount.

Specific Topics for Wineries (continued)

Consignment sales

If you sell goods (art or craft work, etc.) through a consignment arrangement, you must collect sales tax. Generally, the consignment seller remits sales tax directly to the Department (on behalf of the owner of the consigned goods).

“Consignee” (or selling agent) has either actual or constructive possession of tangible personal property (the goods), although someone else actually owns the property.

“Constructive possession” means possession of the power to pass title of tangible personal property (the goods) to others. WAC 458-20-159

Reporting instructions for consignee selling in the name of the owner:

  • Report consignment sales under the retailing B&O tax classification. You may take a deduction (ID 0215 – Consignment Sales) if you segregate such sales income and maintain appropriate records. WAC 458-20-159
  • Report consignment sales under the retail sales tax classification. Generally, you are responsible for remitting the sales tax to the Department. However, if the owner of the goods is a registered business and normally reports sales tax, you can give the sales tax to the owner to report. In this case, you may take a deduction from the retail sales tax (ID 0199 – Other), as long as you write the reason as “sales tax given to owner.”
  • Report any commissions that you earn from consignment sales under the service and other activities B&O tax classification. RCW 82.04.290

Reporting instructions for consignee (winery) selling in its own name:

  • Report consignment sales under the retailing B&O tax classification.
  • Report consignment sales under the retail sales tax classification.
  • Consignees selling in their own name do not report commission income.

For tax reporting instructions for the owner of the goods, see our Special Notice “Tax Reporting for Consignment Sales.” (pdf)

Specific Topics for Wineries (continued)

Donations of wine to charities/nonprofits

Wineries are often asked to donate bottles of wine or other products without payment for charitable causes. Goods donated to nonprofits without any intervening use are not subject to retailing B&O tax or sales tax (since they are given away without a charge), nor does the donor (winery) owe use tax on the value of the wine. RCW 82.12.02595 You must keep documentation supporting the donation in your records.

Specific Topics for Wineries (continued)

Retail sales of prepared foods
Beginning January 1, 2008, businesses where “prepared foods” make up more than 75% of the annual sales of food and food ingredients must collect sales tax on all sales of food and food ingredients. Businesses whose sales of prepared foods are less than 75% of their total annual sales of food and food ingredients may segregate their food sales and collect sales tax only on those items subject to sales tax.

Prepared foods include:

  1. Food sold with eating utensils provided by the seller.
    1. Utensils include plates, knives, forks, spoons, glasses, cups, napkins, or straws
    2. Utensils do not include containers or packaging used to carry the food, such as a container for potato salad
  2. Food and food ingredients sold in a heated state or heated by the seller, except bakery items.
    1. Examples: grilled sandwiches, soups
  3. Two or more food ingredients mixed or combined by the seller for sales as a single item, unless the product:
    1. Is only cut, repackaged, or pasteurized by the seller
    2. Contains raw eggs, fish, meat, poultry, and food containing these raw foods that require cooking by the consumer as recommended by the FDA to prevent food borne illness.
  4. If sold without eating utensils provided by the seller, prepared foods do not include:
    1. Bakery items
    2. Food sold by weight or volume as a single item in an unheated state
    3. Food sold by a food manufacturer per NAICS sector 311, except for bakeries.

All businesses that sell “prepared foods” must determine whether or not they meet the 75% threshold. See the Retailers of Prepared Foods guide and WAC 458-20-244 for specific instructions and examples.

Specific Topics for Wineries (continued)

Wine maker dinners, catered events, banquet facilities

Wineries often sponsor or participate in dinners or catered events or provide banquet facilities for rent to outside parties. Your tax obligations in each of these events differ, depending on the goods and services provided.

Sponsoring dinners/ catering events

If you serve prepared food to or cater for consumers, you are providing a retail service. You must collect retail sales tax on the total charge to customers for meal or catering services. WAC 458-20-119; WAC 458-20-124

A “caterer" is a person who provides, prepares, and serves meals for immediate consumption at a location selected by the customer. For caterers, this includes the charge for meals, equipment, decorations, as well as the catering service. Tax applies regardless of where the caterer prepares and/or serves the meals and whether the caterer uses ingredients that the customer provides. WAC 458-20-119

You must collect sales tax based on the location where you serve the meals.

Wholesale sales of catering services

If your catering service sells to someone other than the ultimate consumer (for example, a nonprofit organization that will resell the dinners as part of a fund-raising event), then you are making a wholesale sale. In such cases, you may accept a reseller permit from your customer. Your gross income from such jobs is reported under the wholesaling B&O tax classification. Retail sales tax does not apply.

  • Sales tax on rentals/purchases by food servers/caterers: You must pay retail sales or use tax on purchases or rentals of items for your own use in the business, when the items are not resold to the consumer. Because you are providing a retail service, you are considered the consumer of all tangible personal property used. The tax applies even if the food service company/caterer itemizes the charge to the customer.
    • Taxable items include:
      • Plates
      • Glasses
      • Linens
      • Serving utensils
      • Silverware
      • Decorations
      • Cooking equipment

Specific Topics for Wineries (continued)

Providing banquet/meeting facilities

Wineries often rent out part of their facilities to others for banquets, parties, meetings, etc. In most cases, if you make a separate charge for the use of a banquet or meeting room, retail sales tax does not apply. Instead, this income is subject to B&O tax under the service and other activities classification. However, banquet/meeting facilities provided by a lodging business (hotel, motel, etc.) are subject to sales tax.

If a single charge is made for both a banquet room and meals/drinks (the banquet facility charge is not separately stated), then the total charge is subject to retailing B&O tax and retail sales tax must be collected.

Gratuities

Retail sales tax does not apply to tips or gratuities received under circumstances that are clearly voluntary. However, if the gratuity is a mandatory charge on the bill, then the charge becomes part of the selling price of the meal/service, and is subject to retail sales tax and retailing B&O tax.

A gratuity is not voluntary when the amount is agreed upon and the contract document states that a gratuity “will be added.” For example, a food server/caterer may have a policy of adding a 15 percent charge to the bill for groups of five or more customers. When a gratuity is applied in this manner, the entire charge is subject to retail sales tax as well as retailing B&O tax.

  • Example: The total food/drink bill for a group of five is $200. A mandatory tip of 15 percent is added on for a total bill of $230. Retail sales tax should be calculated on $230. Assuming an 8.3 percent tax rate, the total with tax is $249.09. Additionally, the $230 gross sales amount is subject to retailing B&O tax.

Specific Topics for Wineries (continued)

Out-of-State wineries – direct sales to Washington consumers

Effective June 7, 2006, out-of-state wineries may sell wine directly to Washington consumers. However, the wineries must collect the appropriate state and local sales or use taxes from their customers and remit the tax to the Department of Revenue. For specific information, see our Special Notice, “Direct Wine Sales to Consumers – New Registration and Tax Collection Requirements.” (pdf)

Before an out-of-state winery can sell and ship directly to Washington consumers it must:

  • Obtain a wine shipper’s permit from the Liquor Control Board (LCB)
  • Pay all assessed permit fees
  • Register with the Department of Revenue and receive a tax registration number as a condition for obtaining a wine shipper’s permit.

The law requires that out-of-state wineries collect tax from their in-state customers, regardless of whether they have a physical presence in Washington. They must collect either the sales or use tax, but not both. The taxes have the same rate and are calculated on the selling price, including all shipping, handling, and delivery charges.

To determine if you have established nexus in Washington, please see WAC 458-20-193(7), and the criteria listed under subsection (c).

  • Use tax: You must collect this tax when you do not have a physical presence (“nexus”) in Washington.
    • The use tax rate to charge is determined by your customer’s location. To determine the correct use tax rate and code, use our Tax Rate Lookup tool.
  • Sales tax: you must collect this tax when you have a physical presence (“nexus”) in Washington.
    • The location of an in-state store, outlet, stock of goods, or representative determines the sales tax rate you charge.
    • If you don’t have an in-state store, outlet, etc., the sales tax rate is determined by your customer’s location. To determine the correct use tax rate and code, use our Tax Rate Lookup tool.