Is use tax due on complimentary (free) servings of beer that a bar brews on its own premises?

Plain-English summary

A bar that brews its own beer on the premises asked whether it owes use tax when it gives that beer away for free, as a complimentary drink. The Comptroller's answer: normally, limited sales and use tax is due on complimentary alcoholic beverages, based on the cost of the taxable ingredients used to make them. But beer brewed on-site is different — its ingredients (corn, wheat, barley, salt, yeast, etc.) are raw agricultural/food items that are not themselves subject to limited sales tax. Since there's no taxable ingredient cost to measure the use tax against, no use tax is due on the complimentary beer itself.

That said, use tax is still due on the cost of any non-reusable items the bar hands the customer along with the free beer — things like napkins or disposable cups.

Separately, the letter confirms that mixed beverage gross receipts tax is not due on complimentary alcoholic beverages at all.

What this means for you

Bars and restaurants that brew their own beer

If you brew beer on-site and give some away for free (as a promotion, a sample, or a courtesy), you don't owe use tax on that beer, because the raw ingredients that go into brewing it (grains, salt, yeast) aren't taxable items in the first place. Contrast this with complimentary drinks made from purchased taxable ingredients (like mixers or garnishes), where use tax would normally apply based on the cost of those taxable ingredients.

Businesses giving away disposable serving items

Even though the beer itself isn't taxed, don't forget the incidental items — napkins, disposable cups, stirrers, etc. — that you provide with a complimentary drink are still subject to use tax based on their cost, since those items are not reusable.

Mixed beverage permit holders

Complimentary alcoholic beverages (including this on-premises-brewed beer) are not subject to mixed beverage gross receipts tax, regardless of the sales/use tax analysis above.

Common questions

Q: Do I owe use tax on beer I brew myself and give away for free?
A: No. Because the ingredients used to brew beer (corn, wheat, barley, salt, yeast, etc.) are not taxable items, there's no taxable ingredient cost to apply use tax to.

Q: Is this the same answer for all complimentary alcoholic beverages?
A: No. The letter states that, normally, limited sales and use tax IS due on complimentary alcoholic beverages, based on the cost of their taxable ingredients. The exception here applies specifically because beer's brewing ingredients aren't taxable to begin with.

Q: Do I owe tax on the cups or napkins I give with a free drink?
A: Yes. Use tax is due on the cost of non-reusable items furnished to the customer, such as napkins or disposable cups.

Q: Does mixed beverage gross receipts tax apply to complimentary drinks?
A: No. The letter states that mixed beverage gross receipts tax is not due on complimentary alcoholic beverages.

Q: Can I rely on this letter for my own business?
A: No. This opinion is based on the facts presented to the Comptroller, and additional or different facts could change the outcome; it also binds the Comptroller only as to the taxpayer it was issued to.

Citations and references

No specific statutes or administrative rules are cited by name in this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9602524L

Original ruling text

February 21, 1996

Dear ***:

Thank you for contacting our office with your questions concerning use tax on
complimentary servings of beer brewed on the premises.

Normally limited sales and use tax is due on complimentary alcoholic beverages
based on the cost of the taxable ingredients. In the case of beer brewed on
the premises, use tax would not be due on complimentary servings because the
ingredients (corn, wheat, barley, salt, yeast, etc.) are not subject to limited
sales tax. Use tax would be due on the cost of any non reusable items
furnished to the customer, such as napkins or disposable cups.

Mixed beverage gross receipts tax is not due on complimentary alcoholic
beverages.

This opinion is based on the facts presented. If there are additional or
different facts the opinion may change.

If you have any other questions concerning this, please give me a call at
463-3849. You may also write me at the Tax Policy Division or FAX
512/475-0900.

Sincerely,

Kirk J. Davenport
Tax Policy Division