Document Number
08-146
Tax Type
Cigarette Tax
Description
Documentation needed o prove it qualifies as a tobacco product manufacturer
Topic
Taxable Income
Tobacco Products
Date Issued
07-30-2008


July 30, 2008






Re: Ruling Referral: Cigarette Tax

Dear *****:

This will respond to your letter dated February 2, 2006 requesting a ruling on the application of Va. Code § 58.1-1012 to ***** (the "Taxpayer").

Facts


You state that the Taxpayer is a New Jersey corporation that markets imported brands of cigarettes, generally on an exclusive basis. Before 2003, the Taxpayer operations were limited to the resale of unstamped cigarettes in large bulk quantities to large wholesale distributors and licensed stamping agents.

In 2003, the Taxpayer formed an operating division (the "Division") that marketed stamped cigarettes to retailers. The Taxpayer became a licensed stamping agent in 39 states, including the state of Virginia.

In a review of the Taxpayer's records, the Department of Taxation ("TAX") discovered that the Taxpayer was selling unstamped cigarettes within the Commonwealth of Virginia. TAX notified the Taxpayer in a letter dated November 7, 2005, that this was a violation of Virginia law and that the Taxpayer must affix Virginia Cigarette Tax Stamps to any packs of cigarettes being shipped to customers within Virginia. The Taxpayer responded on February 2, 2006, and argued that Taxpayer should be treated as a manufacturer under Va. Code § 58.1-1012(B), instead of as a wholesale dealer under Va. Code § 58.1-1012(A), and therefore allowed to ship unstamped cigarettes into the Commonwealth.

In a letter dated January 27, 2007, the Taxpayer advised TAX that the Taxpayer would not be renewing its license to stamp cigarettes as its Division had been closed. The Taxpayer has requested a ruling from TAX that it should be properly classified as a manufacturer and not a wholesale dealer, for the purposes of Va. Code § 58.1-1012.

Determination


The duties of wholesale dealers, manufacturers, and exclusive distributors in shipping, delivering or sending out cigarettes are set forth in Va. Code § 58.1-1012. Code of Virginia § 58.1-1012(B) provides that "[a]ny manufacturer or exclusive distributor shall not be required to affix Virginia revenue stamps as required by subsection A, if such manufacturer or exclusive distributor is shipping, sending, selling, or delivering the cigarettes to a wholesale dealer in the Commonwealth who is a duly qualified wholesale dealer stamping agent." Therefore, for the Taxpayer to be exempt from affixing stamps, the Taxpayer must qualify as either an "exclusive distributor" or a "tobacco product manufacturer".

Code of Virginia § 58.1-1000 defines an "exclusive distributor" as "any individual, corporation, limited liability company, or limited liability partnership with its principal place of business in the Commonwealth that has the sole and exclusive rights to sell to wholesale dealers in the Commonwealth a brand family of cigarettes manufactured by a tobacco product manufacturer as defined in § 3.1-336.1." (Emphasis Added.) As the Taxpayer is a New Jersey corporation with its principal place of business in New Jersey, it is my determination that the Taxpayer does not qualify as an "exclusive distributor" under Va. Code § 58.1-1012(B).

"Tobacco product manufacturer" is defined in Va. Code § 3.1-336.1 as an entity that directly (and not exclusively through any affiliate):
    • 1. Manufactures cigarettes anywhere that such manufacturer intends to be sold in the United States, including cigarettes intended to be sold in the United States through an importer (except where such importer is an original participating manufacturer (as that term is defined in the Master Settlement Agreement) that will be responsible for the payments under the Master Settlement Agreement with respect to such cigarettes as a result of the provisions of subsections II (mm) of the Master Settlement Agreement and that pays the taxes specified in subsection II (z) of the Master Settlement Agreement, and provided that the manufacturer of such cigarettes does not market or advertise such cigarettes in the United States);
    • 2. Is the first purchaser anywhere for resale in the United States of cigarettes manufactured anywhere that the manufacturer does not intend to be sold in the United States; or
    • 3. Becomes a successor of an entity described in subdivision 1 or 2 of this definition.

As the Taxpayer does not manufacture cigarettes directly, and has not claimed to be a successor of another entity that qualified as a tobacco product manufacturer, it can be a manufacturer for the purposes of Va. Code § 58.1-1012(B) only if it is an entity described in subdivision 2. This means that the Taxpayer would have to be the first purchaser anywhere for resale in the United States of cigarettes manufactured anywhere that the manufacturer does not intend to be sold in the United States. Without evidence from the Taxpayer that this is true for each of the brands it is selling unstamped, the Taxpayer would not qualify as a tobacco product manufacturer with respect to the brand, and therefore Va. Code § 58.1-1012(B) would not apply to the Taxpayer with respect to the brand.

Code of Virginia § 58.1-1012(A) provides that "[e]very wholesale dealer in the Commonwealth shall before shipping, delivering or sending out any cigarettes to any dealer in the Commonwealth or for sale in the Commonwealth, cause the same to have the requisite denominations and amount of stamps to represent the tax." If the Taxpayer does not qualify as a manufacturer, the Taxpayer is treated as a wholesale dealer under Va. Code § 58.1-1012(A) and must affix Virginia Cigarette Tax Stamps to any packs of cigarettes shipped to customers within Virginia. The Taxpayer must apply to TAX and obtain a permit to be a qualified stamping agent under Va. Code § 58.1­1011 in order to purchase Virginia Cigarette Tax Stamps.

In order for the Taxpayer to be treated as a manufacturer under Va. Code § 58.1- 1012(B) and absolve itself from a wholesale dealer's duty to affix Virginia Cigarette Tax Stamps, the Taxpayer must provide documentation that it qualifies as a tobacco product manufacturer under Va. Code § 3.1-336.1. Please send any documentation to the Virginia Department of Taxation, Attention: *****, Tobacco Unit, P.O. Box 715, Richmond, Virginia 23218-0715. Until such time that the Taxpayer has provided this documentation, TAX will continue to treat the Taxpayer as a wholesale dealer, whose duties are found in Va. Code § 58.1-1012(A).

The Code of Virginia sections cited, along with other reference documents, are available on-line in the Tax Policy Library section of TAX's web site, located at www.policylibrary.tax.virginia.gov. If you have any questions about this determination, you may contact ***** in the Office of Policy and Administration, Policy Development, at *****.
                • Sincerely,


                • Janie E. Bowen
                  Tax Commissioner



Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46