Brewers and distillers are liable for paying excise taxes to both the federal government and to the state where they have their production facilities.
These taxes are a set value based on the total volume amount of beer or spirits sold, such as $0.10 per gallon of beer or $2.50 per gallon of spirits sold. The specific tax amounts vary among states and product types.
These excise taxes that are due to a state should be baked into the stated price of the beer or spirits sold. Unlike sales tax, excise taxes may not be collected on top of the price and a seller who does not account for the tax they need to remit will end up earning less money than they initially intended. So, if someone were to sell a gallon of beer for $10, then per the above scenario, ten cents of the $10 they receive should be remitted to the state; but an unwary seller would end up with ten cents less personally they expected—which, if they sell several thousand gallons, could really add up.
While brewers and distillers are liable for federal and home state excise taxes, as the producers and “first to own” parties of their products, it is generally their distributors who must manage the excise taxes on their interstate three-tier sales. But as they enter the DtC shipping market, they will have to assume that burden and learn to manage excise tax payments in many more states.
The excise tax filings for DtC shippers are often much less rigorous than excise tax filings for the TTB or a producer’s home state. Generally, remitting excise tax payments entails recognizing the total volume that has been shipped DtC, calculating that against the relevant state’s excise tax rates, and filing the return with taxes paid on time.
Many states will also require the DtC shipper to provide summaries detailing all of their orders in that period, such as the name and address of who they shipped to and how much that consumer purchased.
Sales taxes are due only on the final sale to the end consumer, so brewers and distillers may not have to deal with them in the normal course of their business. In three-tier distribution, the final sale to the consumer will be made by the licensed retailer. But in a DtC sale, that retailer is removed and so the DtC shipper has to manage the local sales tax liability.
DtC shippers are usually required to hold a DtC shipping-specific license issued by the state they want to ship into. In turn, states have required that, as a condition for getting that DtC shipping license, the prospective DtC alcohol shipper “voluntarily” register as a sales tax collector in that state. So a brewery or distillery either could continue to not have a sales tax burden in a remote state or they could make DtC shipments of their products into that state, but they could not do both.
While this might seem like a bit of a heavy-handed tactic, it did create parity between DtC shippers and local alcohol retailers. But it also meant that DtC shippers had to manage a complicated, multistate sales tax burden.
How to Manage Sales Taxes
Sales tax rules and rates can vary wildly across the country.
Sales taxes are determined at the location where the sale occurs, where the consumer takes possession of the goods they’ve purchased.
But sales tax rates can also be set at the state, county, city or special district level, meaning that the appropriate tax rate can change depending on which side of the street the sale is made at — or there could be a single rate that applies to all addresses in the state. If you sell from one or two physical retail locations, that’s not that hard. But if you are shipping to hundreds or thousands of addresses in many different states, managing the tax burden becomes extremely complicated.
It is critical for a business to make sure that they are collecting the correct sales tax where the sale occurs. Collecting the proper amount of tax from the consumer at the time of purchase is key, as undercollection requires the seller to remit the tax due to the state out of their pocket and overcollection is a form of theft — taking money from the consumer they weren’t authorized to take.
It is also critical that the seller remit all taxes they’ve collected to the state as that is technically the state’s money. Ultimately, states see a sale made and demand a certain percentage of that sale. But to not penalize sellers for their transactions, states permit sellers to assess the tax due from customers on top of the agreed upon price for the transaction.
Once the seller has calculated and collected the correct amount of sales tax from their consumers, they must then file the appropriate returns and remit all of the taxes they’ve collected to the state.
Depending on the state, the filing process can be more or less complicated. This all depends on how many tax jurisdictions a state permits. For instance, a state like Michigan, which only levies a single rate across the entire state, will be fairly straightforward, maybe a few pages; a state like Colorado, which maintains hundreds of separate tax jurisdictions with their own rates and rules, requires extremely large returns detailing sales to each of those jurisdictions.
Many states have recently improved their tax filings by moving them to online systems. These electronic filings can be extremely helpful to businesses, as they do not need to manually fill out potentially dozens of pieces of paper every month and mail them in. But there is still a sliding scale in how these electronic filings work; some have fully searchable spreadsheets and others just allow uploads of paper forms.
In recent years many states have adopted specific filing processes for remote sellers as they’ve adopted economic nexus rules. These filings attempt to remove some of the complexity that comes with managing sales tax rules in an outside state. Largely this is designed to manage taxes in states with numerous and varied local tax rates, which may alarm an out-of-state business.