United States

California: The Cocktails for Healthy Outcomes Act Would Impose a Surtax on Cocktails

Sep 07, 2015
From KPMG TaxWatch

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On August 31, 2015, California Assembly Member Susan Bonilla (Democrat, 14th Assembly District) introduced the Cocktails for Healthy Outcomes Act (AB 18), which would impose a five cent ($0.05) “surtax” on the purchase of a cocktail in the state of California. Specifically, the surtax would be imposed on the purchaser of the cocktail, but would be collected and remitted by the seller or “on-sale licensee.” An “on-sale licensee” is an entity that holds a California license to sell alcoholic beverages for consumption on the premises where sold. This would appear to include most bars and restaurants. However, licensees selling alcoholic beverages on trains, boats, airplanes, or at certain veterans’ clubs would not be required to collect the surtax. Revenues generated from the surtax would be deposited in the “Healthy California Special Fund” and would be used to provide developmental disability services.

A cocktail, for purposes of the bill, would be defined as “any beverage that is, or contains, distilled spirits.” Thus, the term appears to include unmixed spirits and traditional mixed cocktails. “Distilled spirit” is defined as “an alcoholic beverage obtained by the distillation of fermented agricultural products, and includes alcohol for beverage use, spirits of wine, whiskey, rum, brandy, and gin, including all dilutions and mixtures thereof.” The term cocktail does not appear to include beer or wine.

The five cent surtax would be excluded from the “gross receipts” subject to sales tax.  Each year, the surtax rate would be adjusted in accordance with the California Consumer Price Index, but could not drop below five cents. Because the bill would raise taxes, it would need to pass both houses of the California legislature by a two-thirds majority, as required by the California Constitution. Please stay tuned to TWIST for future updates on Assembly Bill 18.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.