Is nonalcoholic beer subject to Texas sales tax, or is it taxed under the Texas alcoholic beverage tax instead?

Plain-English summary

The Texas Comptroller's Tax Policy Division confirmed that nonalcoholic beer is subject to Texas sales or use tax, no matter the brand or type. It is taxed the same way as any other soft drink or soda — as an ordinary sale of a beverage.

Nonalcoholic beer is not subject to Texas alcoholic beverage taxes, since (unlike its alcoholic counterpart) it isn't an alcoholic beverage for tax purposes.

There's one twist: if a nonalcoholic product is mixed with an alcoholic product to make an alcoholic drink for sale, that nonalcoholic ingredient becomes part of the finished alcoholic drink and is instead subject to the alcoholic beverage taxes — not sales tax.

What this means for you

Retailers and bars selling nonalcoholic beer

If you sell nonalcoholic beer on its own (not mixed into a cocktail or other alcoholic drink), you should charge and remit Texas sales or use tax on it, exactly as you would for a soda or other soft drink. Don't report it under alcoholic beverage tax.

Bars and restaurants that mix nonalcoholic ingredients into alcoholic drinks

If a nonalcoholic beverage or ingredient is combined with alcohol to create an alcoholic drink for sale, that combination is treated as part of the alcoholic drink for tax purposes — meaning it falls under the alcoholic beverage taxes rather than sales tax.

Accountants and tax professionals

This letter is a short, clean example of Texas drawing the line between sales tax and alcoholic beverage tax based on the actual character of the product sold: a standalone nonalcoholic beverage is taxed like any other soft drink, while the same product becomes part of an alcoholic beverage tax base once it's mixed into an alcoholic drink.

Common questions

Q: Is nonalcoholic beer subject to Texas sales tax?
A: Yes. It is subject to Texas sales or use tax regardless of brand or type, taxed the same as other soft drinks or sodas.

Q: Is nonalcoholic beer subject to Texas alcoholic beverage tax?
A: No, nonalcoholic beer itself is not subject to Texas alcoholic beverage taxes.

Q: What happens if a nonalcoholic product is mixed with alcohol to make a drink for sale?
A: Once mixed with an alcoholic product to create an alcoholic drink for sale, the nonalcoholic component becomes part of that alcoholic drink and is subject to the alcoholic beverage taxes.

Q: Does the brand or type of nonalcoholic beer change the answer?
A: No. The letter states the sales/use tax treatment applies "regardless of the brand, type, etc."

Q: Can I rely on this 1996 letter today?
A: Letters on STAR can be relied on only by the taxpayer to whom they were issued, and documents on STAR may no longer represent current policy even if not marked superseded. Confirm current treatment with a Texas tax professional or the Comptroller's office.

Citations and references

No specific statutes or rule numbers were cited 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/9606L1419G14

Original ruling text

June 14, 1996

Transmitted Via Internet

Dear ***:

Nonalcoholic beer is subject to Texas sales or use tax, regardless of the
brand, type, etc. These products are taxed in the same manner as other
soft drinks or sodas.

Nonalcoholic beer is not subject to Texas alcoholic beverage taxes.
Nonalcoholic products that are mixed with alcoholic products to create
alcoholic drinks for sale are part of the alcoholic drink and subject
to the alcoholic beverage taxes.

Sincerely,

Tax Policy Division

NOTE: Previous Accession Number 9606369L