Update: Lawsuit filed over flavored malt beverages regulations
Beginning October 1, 2008, flavored malt beverages will be taxed at the distilled spirits rate of $3.30 per gallon rather than at the beer rate of $0.20 per gallon. This change is the result of a regulation promulgated by the Board of Equalization (see “Flavored malt beverages soon to be taxed as distilled spirits,” in the July 2008 issue of Spidell’s California Taxletter®).¹

Diageo-Guinness USA, Inc. and the Flavored Malt Beverage Coalition filed suit on June 12, 2008, against the BOE on grounds the regulation violates state law, the Administrative Procedures Act, and the Commerce Clause of the U.S. Constitution. The taxpayers argue that the flavors added to the malt beverages to make the flavored malt beverages are not distilled spirits, and that they meet the statutory definition of beer under the Alcohol Beverage Control Act. The taxpayers further argue that the BOE is violating R&TC §32152 by adopting regulations that contradict the federal system for beer and wine taxation.

¹ 18 CCR §§2558, 2559, 2559.1, 2559.5