United States

Washington State: Resale Exemption Did not Apply to Mixers

Jun 12, 2017
From KPMG TaxWatch

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In a recent determination, an ALJ for the Washington State Department of Revenue addressed three different issues related to an airline’s tax assessment. One of the issues was whether the taxpayer owed use tax on non-alcoholic beverages boarded on flights in Washington and consumed in Washington if the non-alcoholic beverages were incorporated into alcoholic beverages that were sold to customers. The ALJ first clarified that, under Washington law, the taxpayer was the user/consumer of taxable (e.g., sodas, certain juices, etc.) non-alcoholic beverages boarded on Washington flights and served to Washington customers free of charge. However, the taxpayer argued that it did not owe use tax on non-alcoholic beverages that were mixed with spirits and sold to customers. In the taxpayer’s view, these beverages (which it estimated accounted for approximately 50 percent of the total non-alcoholic beverages purchased) were not subject to use tax because they were purchased for resale to customers. The ALJ disagreed. The airline’s menu provided that non-alcoholic beverages were complimentary, while the cost of spirits was $5. The cost of a drink did not increase if a non-alcoholic beverage was added to the spirit. In other words, a Bloody Mary was the same price as a vodka on the rocks. Thus, the ALJ concluded that the taxpayer was not reselling any portion of the non-alcoholic beverages to customers. Please contact Michele Baisler at 206-913-4117 with questions on Det. No. 14-0298.


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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.