In California, all sales are taxable unless the law provides a specific exemption. In most cases, taxable sales are of tangible personal property, which the law defines as an item that can be seen, weighed, measured, felt, or touched.

For liquor stores, most taxable sales are going to be of beverages. However, you may also be required to collect sales tax on your sales of taxable food or periodicals, among other things.

If you consume or give away taxable items such as soda or alcoholic beverages that you purchased without paying sales tax, you owe an equivalent use tax – which is the same rate as sales tax – based on the cost of those items to you.

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Most people who sell taxable items in California, even temporarily, must register with the BOE for a seller's permit. Registering for a seller's permit is free, although in some cases a security deposit may be required. If you have liquor stores in multiple locations, you must register each location with us. You can register electronically with the Board of Equalization for a seller's permit or consolidated seller's permit using our online electronic registration service.

Be sure to let us know about any changes to your business, or to your mailing or email address so that we can keep your records updated and inform you of important changes in law, tax rates, or procedure. You can easily update your account information by contacting our Taxpayer Information Section or any one of our field offices throughout the state. Contact information is available in the Resources section of this guide.

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Retail sellers of cigarettes and tobacco products must have a California Cigarette and Tobacco Products Retailer's License before purchasing or selling cigarettes or tobacco products. You must obtain this license in addition to your seller's permit.

• You are required to have a license for each location from which cigarettes or tobacco products are sold.
• If you purchase cigarettes or tobacco products from an out-of-state supplier who does not have a California Cigarette and Tobacco Products License, you must obtain a distributor's license.
• If you purchase tax-paid cigarettes or tobacco products for resale, you must obtain a wholesaler's license.

You can apply online for a cigarette and tobacco products license using our electronic registration service at https://efile.boe.ca.gov/ereg/index.boe or at any of the BOE's field offices. A comprehensive listing of BOE field offices can be found at www.boe.ca.gov/info/phone.htm.

Transferring Product Between Stores

If you own more than one store and hold the necessary licenses for each location, you may be allowed to transfer cigarettes and tobacco products between stores. When transferring cigarettes and tobacco products, legible transfer records and copies of the original purchase invoice must be kept at each location involved in the transfer.

The transfer records must be prepared at the time of transfer and must include the address and tobacco license number of each store, the purchase invoice date, the purchase invoice number, the supplier's name on the invoice, the brand, type of packaging, flavor, and or style, and the amount of items transferred.

You must provide such documentation upon request by BOE staff or law enforcement.

For more information about licensing requirements for sellers of cigarettes and tobacco products, see BOE publication 78, Sales of Cigarettes and Tobacco Products in California. You may also attend a tobacco class for retailers or view our online tobacco seminar.

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If a cigarette manufacturer or distributor offers a "buy-down" promotion, where you agree to sell certain cigarettes at a reduced price and receive compensation from the manufacturer or distributor, sales tax applies to the total received from the customer plus any amount received from the manufacturer or distributor.

For more information, please see BOE publication 113, Coupons, Discounts, and Rebates, or Regulation 1671.1, Discounts, Coupons, Rebates, and other Incentives.

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The list below is a summary of taxable items typically sold at liquor stores. It is not comprehensive. If you have questions about a product that is not included here, you may contact our Taxpayer Information Section at 1-800-400-7115.

• Alcoholic beverages
• Carbonated water and soda
• Ice
• Tobacco Products
• Most hot prepared food (see Hot Prepared Foods in this guide)
• Non-prescription medicines
• Books, newspapers, and magazines
• Other non-food or beverage items such as automotive supplies, greeting cards, etc.

For more information, please see BOE publication 24, Liquor Stores.

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The list below is a summary of nontaxable items typically sold at liquor stores. It is not comprehensive. If you have questions about a product that is not included here, you may contact our Taxpayer Information Section at 1-800-400-7115.

• Milk
• Ice cream
• Fruits and vegetables
• Chips and crackers
• Cold meats
• Candy
• Cold sandwiches sold to-go
• Noncarbonated, nonalcoholic beverages such as water and juice.

For more information, please see BOE publication 24, Liquor Stores.

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Generally, if the beverage you sell is taxable, tax also applies to the separate charge for CRV. The amount subject to tax is the combined selling price of the beverage, the container, and the CRV.

Note: The CRV program is administered by the California Department of Conservation, Division of Recycling. Questions regarding the fee should be directed to the Department of Conservation. This guide covers only how sales tax applies to CRV charges.

For more information about the CRV fee, visit the California Department of Conservation's Beverage Container Recycling page at www.consrv.ca.gov/dor/pages/indes.aspx.

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Heated food is usually taxable whether or not it is sold to-go or for consumption on your store premises.

A food product is hot when it is heated to above room temperature, and is still considered hot even after it has cooled, because it is intended to be sold in a heated condition.

Notable Exception: Hot Baked Goods

Hot baked goods, such as hot baked pretzels or croissants, sold to-go are exempt from sales tax. If sold in a combination package with hot prepared foods or with a hot beverage, however, the entire combination package is taxable. Hot baked goods purchased for consumption at your store are taxable.

For more information, see BOE publication 22, Dining and Beverage Industry.

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If you sell a food product that is normally exempt from tax – such as a frozen burrito, the product may become taxable if it is heated in a microwave oven prior to the sale. The location of the microwave oven is the determining factor in whether the sale is subject to tax:

• If the microwave is accessible to your customers, it is presumed that the food is not sold in a heated condition and that the microwave is being provided as a convenience to your customers, who may choose to heat the product.
• If the microwave is behind the counter, it is presumed that the food is being sold in a heated condition, and is therefore taxable.

For more information, see BOE publication 22, Dining and Beverage Industry.

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When you sell two or more food items together in a package to-go for a single price, tax applies depending on the components of the package.

Including hot food or hot beverages with a combination package makes the entire package taxable.

If you sell a combination package to-go that includes cold food and a soda, the amount of the selling price of the soda is taxable.

Sales of food and beverages for your patrons to eat in your store are always taxable.

For more information, see BOE publication 22, Dining and Beverage Industry.

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Newspapers, magazines, and other periodicals you sell to your customers are taxable.

Newspapers, magazines, and other periodicals you provide without charge are not taxable. If you request payment or suggest a donation for such items, but do not require a payment or donation, you are considered to be providing the items without charge.

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If you accept discount coupons that allow your customers to purchase merchandise at a reduced price, tax is due on the amount you receive for the sale, plus any amount you receive from a third party as payment.

In cases where you offer your customers a store discount on taxable merchandise, you are not being paid by any third party. You owe tax only on the amount received from your customer.

A manufacturer's discount is one where you receive money from a manufacturer or other party as reimbursement. The amount you receive from a manufacturer or other third party as reimbursement for a discount is considered part of your gross receipts and is taxable, along with the amount you receive from your customer.

For more information, please see BOE publication 113, Coupons, Discounts, and Rebates.

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Sales of tickets for California Lottery games are not taxable, and you should not include them on your sales and use tax return as part of your gross receipts.

Remember, it is important to keep your receipts for nontaxable sales – such as lottery tickets – separate from receipts for taxable sales.

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Service charges you make to your customers for money orders and returned checks are not taxable.

You should not include service charges for money orders or returned checks on your sales and use tax return as part of your gross receipts.

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If you sell any fixtures or equipment used in your business, you should pay taxes on the selling price. Sales of fixtures and equipment you use are taxable even if they occur as part of the sale, reorganization, or closure of your business.

For more information, please see Regulation 1595, Sale of a Business – Business Reorganization.

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There are different ways of recording your sales. The two most common methods are key-ring and scanner. Retailers that use a scanner tend to have a lower rate of errors than retailers that use a key-ring method to ring up sales.

If you are using a scanner, be sure to program it so that items you sell are correctly scanning as taxable or nontaxable.

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When you issue a resale certificate to purchase taxable items for resale, you don't pay sales tax at the time of purchase. Instead, sales tax applies when you sell the items at retail.

If you purchase an item with a resale certificate and use it, you owe a use tax – at the same rate as the sales tax at the location of use – to the BOE.

For more information, please see BOE publication 24, Liquor Stores.

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Items you purchase for use in your business (displays, advertising materials, bookkeeping and maintenance supplies, storage equipment, and refrigeration units, among others) are subject to tax at the time of purchase.

Normally such items are purchased from local suppliers who add and report sales tax. However, if you purchase equipment or supplies from an out-of-state seller, the sale is subject to use tax (see use tax below).

If the out-of-state seller does not charge California use tax, you should report the purchase price on your tax return (under "Purchases Subject to Use Tax").

Note: Wrapping and packaging supplies used to wrap merchandise or bags in which you place items sold to your customers may be purchased for resale. All other purchases of supplies, however, are generally subject to tax.

For more information, please see BOE publication 24, Liquor Stores.

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If you purchase taxable property without paying California tax and use the property for a purpose other than for resale, you owe a use tax. For example, if you issue a resale certificate to purchase soda but give it away or consume it, you owe use tax based on its purchase price.

The use tax rate is the same as the sales tax rate in effect at the location of use.

To pay use tax, report the purchase price of the taxable items under "Purchases Subject to Use Tax" on your sales and use tax return. Those purchases become part of the total amount that is subject to tax.

For more information, please see BOE publication 24, Liquor Stores.

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Keeping good books and records will help you detect any losses early. We strongly recommend that you:

• Keep records of all merchandise removed from inventory.
• Keep accurate and complete records of sales and purchases.
• Take a physical inventory at least once a year.
• In the period between inventories, compute the cost of merchandise sold, add the expected percentage of mark-up, and deduct discounts for the period of time involved. Your computed figure should be very close to the sales made for the same period the prior year.
• Ensure that your records of purchases for resale are accurate and complete and do not include supplies or other items not for resale.

Common Inventory Losses

Keep your eye out for the following types of losses:

• Money pocketed by employees and covered up by not ringing up the sale or ringing it up at a lesser amount.
• Merchandise stolen by employees, clean-up crews, or other persons with access to the store.
• Short deliveries or theft by delivery persons.
• Shoplifting by customers.

Note: thefts of cash are not deductible for sales tax purposes because tax is measured by sales.

For more information, please see BOE publication 24, Liquor Stores.

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