Appellate Court Determines That Flavored Malt Beverages Get Lower “Beer” Tax Rate In California

Chalk up another victory for those looking to have their flavored malt beverages taxed as beer and not as spirits.  The Third District Appellate Court in California has reversed a decision by a district court there that declared the California State Board of Equalization’s determination that flavored malt beverages were distilled spirits and should be taxed at the higher rate for distilled spirits.

As we noted in the recent Nebraska debacle about these tax rates, they’re usually significant.  In this California case, the numbers are that beer is taxed at a rate of $0.04 per gallon plus a surcharge of $0.16 per gallon for a total of $0.20 per gallon, contrasted with distilled spirits which are taxed at either $3.30 per gallon or $6.60 per gallon depending on alcohol content.  So depending on the classification, it’s a state imposed tax of $6.20 a barrel or $102.3 to $204.6 per barrel.

In this case, the trial court ruled in favor of the State Board’s authority to render a determination that the FMB’s were distilled spirits and apply the higher tax rate.  The appellate court reversed that determination finding that the Board didn’t have authority to make the determination:

“We conclude the Legislature did not delegate authority to the Board to adopt its own classification of alcoholic beverages for purposes of excise taxation. The Legislature directed that the definitions in the ABC Act apply to the Tax Law, and it is the Department, not the Board, that is authorized to interpret as necessary the provisions of the ABC Act, including the relevant alcoholic beverage definitions. The Board instead adopted regulations that utilize different classifications than those adopted by the Department. The Board’s regulations therefore cannot stand.”

The opinion in Diageo-Guinness USA, Inc. and The Flavored Malt Beverage Coalition v. The State Board of Equalization is worth the read.  Even better, and in true Libation Law Blog spirit, we’ve got the appellate briefs for your perusing pleasure.  Here’s the Appellant’s brief, here’s the State’s Response, and here’s the Reply.

The docket in this matter doesn’t show any subsequent history yet, since the appellate opinion was handed down on April 30, 2012.  It’s possible that the parties may take this to the California Supreme Court given the amount of money involved and the fact that the entire opinion rests on some very distinct extra-statutory interpretations of the various state powers granted to different agencies.

Ashley Brandt

Hi there! I’m happy you’re here. My name is Ashley Brandt and I’m an attorney in Chicago representing clients in the Food and Beverage, Advertising, Media, and Real Estate industries. A while back I kept getting calls and questions from industry professionals and attorneys looking for advice and information on a fun and unique area of law that I’m lucky enough to practice in. These calls represented a serious lack of, and need for, some answers, news, and information on the legal aspects of marketing and media. I've got this deep seeded belief that information should be readily available and that the greatest benefit from the information age is open access to knowledge... so ... this blog seemed like the best way to accomplish that. I enjoy being an attorney and it’s given me some amazing opportunities, wonderful experiences, and an appreciation and love for this work. I live in Chicago and work at an exceptional law firm, Goldstein & McClintock, with some truly brilliant people. Feel free to contact me at any time with any issues, comments, concerns… frankly, after reading this far, I hope you take the time to at least let me know what you think about the blog and how I can make it a better resource.

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