On July 27, 2018, the Pennsylvania Department of Revenue (“Department”) issued Tax Bulletin – Sales and Use Tax 2018-02 regarding taxpayers engaged in the manufacture and sale of malt or brewed beverages. The Bulletin is intended to help clarify when a manufacturer of malt or brewed beverages must collect sales tax on the sale of malt or brewed beverages. Unlike a retail liquor licensee or retail dispenser, a manufacturer of malt or brewed beverages is required under the Tax Reform Code of 1971 to collect sales tax on its sales of malt or brewed beverages to any person for any purpose except sales to importing distributors or distributors. 72 P.S. § 7201(k)(10). The Department realized that confusion will occur since a manufacturer is required to collect sales tax on each individual sale of its own product to the public for on-premise or off-premise consumption, while other licensees, not selling their own product but in all other respects acting in a similar capacity, do not collect sales tax. Accordingly, the Department will provide manufacturer’s the following two options for collecting and remitting sales tax:
1. Include the sales tax in the advertised price of their product; or
2. Separately state and charge sales tax on each individual sale.
Under Option #1, the sales tax shall be computed by the following formula: (Total receipts from the sale of its own products ÷ 1.06) X .06 = Sales Tax Due. Please note that a manufacturer that elects to collect tax using this method must display a sign at the location where its prices are displayed noting that the displayed purchase price includes sales tax. Additionally, a manufacturer must pay sales tax when it purchases products other than its own to sell to the public for consumption on-premises. The Department will not require a manufacturer to collect sales tax on sales of other manufacturers’ products to the public (similar to how a bar or restaurant operates).
Under Option #2, the manufacturer must collect and remit sales tax on each individual sale of its own product, whether the sale is for on-premises or off-premises consumption. Additionally, if a manufacturer sells the products of other manufacturers, it must collect the sales tax on the purchase price of those sales as well. The manufacturer should provide the other manufacturer with an exemption certificate claiming a sale for resale exemption. A manufacturer claiming the resale exemption must collect sales tax when its sells the property to its customers. If the manufacturer does not provide an exemption certificate to the other manufacturer when making a purchase and pays sales tax on items that it later resells to customers and charges sales tax, the manufacturer may claim a Taxes-Paid-Purchases Resold credit on its sales tax return.
For manufacturers that sell its malt or brewed beverages under a retail license there are special rules because sales tax is not charged on the sale to the ultimate consumer of the malt or brewed beverage. In these type of situations, the Department requires the manufacturer to use a constructive purchase price for its own products in order to determine the proper tax base upon which to remit sales tax to the Commonwealth. The Department considers the actual retail price of the malt or brewed beverages sold to consumers to best reflect the constructive purchase price. In this scenario, the Department will allow a manufacturer to calculate its tax owed using the Option #1 method mentioned above.
Please note that the Department’s guidance is applied prospective only, beginning with the effective date of January 1, 2019.
If you have any questions regarding this Tax Bulletin, please call Paul Morcom (717-237-5364), Sharon Paxton (717-237-5393) or Randy Varner (717-237-5464) to discuss.