Must distilleries pay sales or use tax on their product that they offer as free samples?

Yes, a distillery must either:

1) pay sales tax to the wholesaler when purchasing back the product that it will offer as free samples, or

2) if the wholesaler does not collect sales tax, pay use tax on the product that it purchases back from the wholesaler.

The tax base of the sales or use tax paid by the distillery on its product that it purchases back from the wholesaler is at least the fair market value of the product. If the wholesaler collects tax on a price that is below the distiller’s cost of making the product, the distiller must pay sales or use tax on the difference between the price charged and the cost. For more information regarding the sales and use taxability of free distillery samples, see Important Notice 18-13.

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