Rev. Rul. 60-166

Advice has been requested as to the deductibility, for Federal income tax purposes, of the excise tax imposed by the State of Oklahoma on all alcoholic beverages under the provisions of the Oklahoma Alcoholic Beverage Control Act, House Bill 825, 27th Legislature, 1959.

Section 4 of Article XXVII of the Oklahoma Constitution provides, in part, that retail sales of alcoholic beverages shall be limited to the original sealed package, by privately owned and operated package stores, in cities and towns having a population in excess of two hundred.

The Oklahoma Alcoholic Beverage Control Act provides, in part, as follows:

Section 21. (g) A package store license shall authorize the holder thereof: to purchase alcoholic beverages in retail containers from the holders of brewer's, wholesaler's and Class B wholesaler's licenses and to sell same on the licensed premises in retail containers to consumers for off-premises consumption only and not for resale; provided, all alcoholic beverages are to be sold at ordinary room temperature.

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Section 40. (a) Payment of the tax levied by this Act with respect to all alcoholic beverages, other than beer, as herein defined, shall be evidenced by tax stamps to be affixed to each original package or container or case or shipping container of an alcoholic beverage, except beer, used or sold other than in an authorized tax-free manner, as hereinafter provided. * * *.

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(c) Payment of the tax levied by this Act with respect to beer shall be made by the manufacturer or brewer as to all beer produced by such brewer within the state for sale within the state, and shall be made by the importing manufacturer or Class B wholesaler who is the original consignee of beer manufactured or produced outside of this state as to all beer imported into the state by such importing licensee. * * *.

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Section 53. An excise tax is hereby levied and imposed upon all alcoholic beverages imported or manufactured, for sale, use or distribution, or used or possessed in this state, at the following rates: * * *.

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Section 62. The excise tax levied by this Act is hereby declared and intended to be a direct tax upon the ultimate retail consumer of alcoholic beverages in this state, and when such tax is paid by, or collected from, any other person, as herein provided for, such payment shall be considered as an advance payment for convenience and facility only, and such tax shall thereafter be added to the price of such alcoholic beverages and recovered from the ultimate retail consumer thereof.

Section 164(a) of the Internal Revenue Code of 1954 provides that, in computing taxable income, there shall be allowed as a deduction taxes paid or accrued within the taxable year, with certain exceptions not here material. Section 1.164-1 of the Income Tax Regulations provides that, in general, taxes are deductible only by the person upon whom they are imposed.

Section 62 of the Oklahoma Alcoholic Beverage Control Act specifically provides that it is the intent of the Oklahoma Legislature to impose the alcoholic beverage tax upon the ultimate retail consumer in that State.

Accordingly, it is held that the alcoholic beverage tax imposed by the State of Oklahoma on spirits, wine, and beer, under the provisions of section 53 of the Act, supra , is deductible under section 164(a) of the Code by the consumer in computing taxable income, except that in the case of an individual who elects to use the standard deduction or the optional tax table, the tax is not deductible unless attributable to a trade or business carried on by him which does not consist of the performance of services by the taxpayer as an employee. In the latter event, the tax is deductible from gross income in computing adjusted gross income.

No deduction is allowable to the licensee paying the tax to the State of Oklahoma Tax Commission, and the portion of the price paid by the consumer to the licensee for alcoholic beverages which represents the Oklahoma tax thereon is not includible in the gross income of such licensee.