My company sells a de-alcoholized wine product that tastes like wine but has less than half a percent alcohol by volume. Is this 'non-alcoholic wine' a taxable alcoholic beverage under New York's Article 18 excise tax?

Plain-English summary

Joseph E. Seagram & Sons, Inc. asked the Department whether its "St. Regis Wine Without the Alcohol" line -- de-alcoholized bottled beverages made for consumers who want the taste of wine without the effects of alcohol -- counted as a taxable "alcoholic beverage" under Article 18 of the Tax Law.

The products were made from a fermented-grape raw material run through a "Centrifugal Molecular Film Evaporator" to remove nearly all the alcohol, but because completely eliminating alcohol from a fruit-based beverage is essentially impossible, St. Regis products always retained trace amounts -- in every case less than one-half of one percent alcohol by volume. They were marketed in food stores as non-alcoholic beverages, with labels emphasizing that fact.

Article 18's literal definition of "wines" (Tax Law § 420(6)) covers "all other beverages containing alcohol manufactured or produced by the fermentation of the natural sugar contents of fruits" -- and Seagram's product technically fit that description, since it was a beverage containing alcohol produced by fermenting grape sugar. The Department rejected Seagram's argument that its product fell outside the statutory definition on that literal ground.

Instead, the Department relied on a de minimis principle: it had never been the purpose of Article 18 to tax beverages whose alcohol content is "too inconsiderable" to meaningfully classify them as alcoholic. It pointed to a 1908 federal Treasury ruling (T.D. 1307) fixing one-half of one percent alcohol by volume as the administrative line below which a beverage isn't treated as alcoholic for federal excise tax purposes -- originally applied to fermented malt beverages but extended to wine as well. New York's own Legislature had confirmed the same principle for beer in 1956, amending § 420(5) specifically to remove doubt that beer with 0.5% or less alcohol by volume isn't subject to the state tax. Seeing no reason to treat non-alcoholic wine differently from non-alcoholic beer, the Department concluded St. Regis's products -- always under the 0.5% threshold -- are not subject to the Article 18 tax.

What this means for you

Manufacturers and sellers of de-alcoholized or "non-alcoholic" wine, beer, and similar beverages

If your dealcoholization process consistently keeps a beverage's alcohol content under one-half of one percent by volume, New York treats it as outside the Article 18 alcoholic beverage tax entirely -- not as an exempt alcoholic beverage, but as not an "alcoholic beverage" for tax purposes at all, by analogy to the express statutory treatment of low-alcohol beer. If your product's alcohol content varies or occasionally exceeds 0.5%, this reasoning may not protect you.

Accountants and tax professionals

This is a 1986 ruling reasoning from a de minimis principle rather than a specific statutory exemption for wine (unlike the express 1956 amendment for beer) -- so the underlying legal theory is administrative interpretation, not a codified wine-specific carve-out. Confirm current Department guidance, since decades have passed and administrative positions can shift even without a statutory change.

Common questions

Q: Is my de-alcoholized wine taxable as an alcoholic beverage in New York?
A: Based on this ruling's reasoning, a beverage with alcohol content consistently under one-half of one percent by volume is not treated as a taxable alcoholic beverage under Article 18, even if it's technically produced by fermentation.

Q: Why does the half-percent threshold matter?
A: It traces to a 1908 federal Treasury ruling used as the administrative line for "too inconsiderable" alcohol content, and was later written directly into New York's beer tax statute (§ 420(5)) in 1956.

Q: Does this ruling apply to my product?
A: Not automatically. This is a 1986 advisory opinion binding the Department only as to Joseph E. Seagram & Sons and the specific facts described, and it did not involve a beer product (where the 0.5% threshold is expressly codified) -- your product's facts and any updated Department guidance need their own review.

Citations and references

Statutes:

• Tax Law § 420(6) (statutory definition of "wines")
• Tax Law § 420(5), as amended 1956 (removing doubt that beer with ≤0.5% alcohol by volume is not taxable)
• Article 18 of the Tax Law (alcoholic beverage excise taxes generally)

Other authority cited:

• U.S. Treasury Department Ruling, T.D. 1307 (Feb. 5, 1908) (0.5% alcohol-by-volume administrative threshold)
• 1956 Legislative Annual, p. 329 (New York's beer-tax amendment)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/alcoholic_beverage_ao.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/alcoholic_beverage/a86_2m.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86 (2) M
Alcohol Beverage Tax
December 12, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. M861003A

On October 3, 1986, a Petition for Advisory Opinion was received from Joseph E. Seagram
& Sons, Inc., 375 Park Avenue, New York, New York 10152.
The issue raised is whether a non-alcoholic wine sold by Petitioner constitutes a taxable
alcoholic beverage for purposes of Article 18 of the Tax Law.
Petitioner produces and sells "St. Regis Wine Without the Alcohol" products which are de­
alcoholized bottled beverages for consumers who desire the taste of wine without the effects of
alcohol. St. Regis products contain trace amounts of alcohol (in all cases less than one-half of one
percent alcohol by volume) because of the virtual impossibility of completely eliminating alcohol
from any fruit-based beverage product. These products consist of a fermented grape raw material
which has been transformed by use of a "Centrifugal Molecular Film Evaporator" into a non­
alcoholic beverage.
St. Regis products are marketed in food stores as non-alcoholic beverages. Their labels
emphasize the non-alcoholic nature of the product.
Article 18 of the Tax Law imposes excise taxes on distributors and noncommercial importers
of alcoholic beverages at various rates of tax for beer, wine, cider and liquor.
Section 420(6) of Article 18 of the Tax Law provides as follows:

6. "Wines" mean and include wine (both still and sparkling and when
   fortified by the addition of alcohol or spirits), fruit juice containing one-half
   of one per centum or more of alcohol by volume and all other beverages
   containing alcohol manufactured or produced by the fermentation of the
   natural sugar contents of fruits or other agricultural products containing
   sugar, providing the foregoing contain not more than twenty-four per centrum
   of alcohol by volume, but shall not mean or include cider containing three
   and two-tenths per centum, or less, of alcohol by volume.
   In its petition, Petitioner argues that its St. Regis products do not come within the definition
   of wines as provided in section 420(6) of the Tax Law. However, inasmuch as Petitioner's St. Regis
   products clearly are beverages containing alcohol produced by the fermentation of the natural sugar
   of grapes, these arguments are not persuasive.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-86 (2) M
Alcohol Beverage Tax
December 12, 1986

Petitioner also asserts that there is no legislative intent to tax St. Regis products inasmuch
as there is no New York "control" interest in discouraging or limiting consumption of de-alcoholized
wine with trace amounts of alcohol. Additionally, Petitioner asserts that its St. Regis products
should not be considered alcoholic beverages for New York State purposes since they are not
considered alcoholic beverages for federal purposes.
Petitioner points out that a number of beverages usually consider to be non-alcoholic in
nature contain small amounts of alcohol (e.g. vanilla milk shakes - .48%; apple juice - .16% and
ginger ale - .08%).
It has been the policy of the U.S. Department of the Treasury since at least 1908 to exempt
from the federal taxes on alcoholic beverages any beverage containing not more than one-half of one
percent of alcohol by volume. In that year, the Commissioner of Internal Revenue held that:
...the practical administration of the law necessitates the fixing of a
point below which the alcoholic content is too inconsiderable to class
the beverage as either of the liquors enumerated above, or similar
thereto or to bring same within the consideration of the internal ­
revenue laws. The practice and rulings of this office have already
fixed this point as one-half of 1 percent in the case of sales of
beverages of this character, and I see no sufficient reason for making
a distinction between the manufacturer and dealer in this class of
beverages. It is therefore held that beverages containing not more
than one-half of 1 percent of alcohol by volume do not come within
the consideration of the internal-revenue laws either as to
manufacture or sale. T.D. Ruling 1307, February 5, 1908.
Although Treasury Department Ruling 1307 pertains to fermented malt beverages, it has also
been applied to wine with an alcoholic content of one-half of one percent or less.
Similarly, the New York State Department of Taxation and Finance has held beer with an
alcohol content of one-half of one percent or less to be exempt from the tax imposed under Article
18 of the Tax Law. In 1956, the State Legislature confirmed the correctness of the Tax Department's
holding by amending section 420(5) of the Tax Law to "remove any doubt that beer containing 1/2
of 1% or less alcohol by volume is not subject to the State tax." 1956 Legislative Annual p. 329.
There is no apparent reason to treat non-alcoholic wine differently from non-alcoholic beer.

-3­
TSB-A-86 (2) M
Alcohol Beverage Tax
December 12, 1986

Accordingly, it is concluded that it was never the purpose of Article 18 of the Tax Law to tax
beverages with an alcoholic content of one-half of one percent by volume inasmuch as their alcoholic
content is too inconsiderable to classify such beverages as alcoholic beverages. Therefore,
Petitioner's St. Regis Wine Without the Alcohol products are not subject to the tax imposed by
Article 18 of the Tax Law.

DATED: December 12, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.