Thursday, January 8, 2015

California Judge Thinks Mike's Lemonade Is Beer ? Go Figure !

Originally published on

There is nothing that drives me crazier than people of a certain age endlessly talking about their ailments, so I will not tell you about mine except to say that I am grateful to live in a time when there are a variety of medications to alleviate them.  There is a price though.  I am barred from even moderate alcohol consumption.  Thankfully, there has been an another great advance in civilization.  There are quite a few decent non-alcoholic beers.  Probably there will never be a non-alcoholic India Pale Ale, because then my life would just be too good.  

As I poked around looking to see if there might be one, I found this comment

To my knowledge no one has even bothered to think about making a non-alcoholic IPA. Seems like a pointless endeavor,

 Well Mr. Lon S Cohen, GenX slacker, you will be 60 someday and might have one of my ailments.  Then you will regret that thoughtless comment, but I will not wish that on you and hope that you can enjoy IPAs well into your dotage and not have to be content with occasional sips from a regular dining companion.  The point of this is that I love beer, independent of its alcohol content, so I am rather disturbed when people try to claim that things that are clearly not beer are.  It seems almost sacrilegious.  Why would anybody do such a thing ?  Particularly a company that has the hallowed "Guinness" as part of its name ?  To save taxes of course.  Taxes is what I mostly write about and what I mostly read about. 

DIAGEO-GUINNESS USA, INC., et al., Plaintiffs and Appellants, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent is a California case.  One of the other plaintiffs in the case is the Flavored Malt Beverage Coaltion.  Flavored Malt Beverage Coalition - You can't make this stuff up.   California taxes alcoholic beverages.  Included in the definition of alcoholic beverages are:

“alcohol, spirits, liquor, wine, beer, and every liquid or solid containing alcohol, spirits, wine, or beer, and which contains one-half of 1 percent or more of alcohol by volume and which is fit for beverage purposes either alone or when diluted, mixed, or combined with other substances.”

The rate of tax varies dramatically.  Beer is taxed at 20 cents per gallon as opposed to distilled spirits which are taxed at either $3.30 or $6.60 depending on alcohol content.  Of course beer has to be defined also:
 “any alcoholic beverage obtained by the fermentation of any infusion or decoction of barley, malt, hops, or any other similar product, or any combination thereof in water, and includes ale, porter, brown, stout, lager beer, small beer, and strong beer but does not include sake, known as Japanese rice wine”
 If you have stautes that cannot distinguish beer from porter
or stout

you are bound to have further confusion, which is indeed what has happened.
That is where "flavored malt beverages" come in.  Here is how the Revenue Department describes them:

 “FMBs are produced from a base of fermented malt beverage that is treated to remove the basic characteristics of a malt beverage, including color, bitterness, and taste. The base is then mixed with flavorings or other ingredients containing distilled alcohol.”

If you remove color, bitterness and TASTE, how can you say it is beer ? Remove everything beer-like, add more alcohol and some other sort of flavoring. You have more of an alcohol delivery system than an actual beverage in my mind. That is actually what is raising concern about these things.  The sweetness is thought to encourage underage drinking and being defined as beer can allow them to be sold in more outlets. 

 The resolution of the case, which is in favor of the plaintiffs is on the lawyerly side.  California's Alcoholic Beverage Commission follows a federal definition for regulatory purposes:

The determination by the Department to follow the TTB [federal] definition of FMBs would appear to be a matter of interpretation of the definitions of beer and distilled spirits found in the ABC Act. Essentially, the Department has determined that an alcoholic beverage falling within the statutory definition of a beer that is then mixed with flavors or other nonbeverage ingredients remains a beer so long as the volume of these added ingredients is sufficiently low.

The Court ruled that the Revenue Department was bound to follow the ABC definition and could not have its own definition.  The FMB Coalition is not perpertrating its sacrilege everywhere.  A Nebraska court  overturned a regulatory definition of FMBs that relied on the federal definition. In Nebraska the FMBs are "spirits" and taxed accordingly.  The suit was brought by organizations interested in discouraging underage drinking.  All I can say is where is the man that if his son should ask him for a beer would give him a Mike's Lemonade ?

You can follow me on twitter @peterreillycpa.

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