Little Cigars Defined As Cigarettes
Effective July 1, 2008, "little cigars" are taxed as cigarettes. "Little cigars" are defined as "rolls of tobacco wrapped in leaf tobacco or any substance containing tobacco and as to which 1,000 units weigh not more than 3 pounds." The tax rate is $2.51 per pack of twenty. All packs of little cigars sold in Massachusetts must be stamped with the current Massachusetts cigarette stamp. Sales of unstamped little cigars to retailers are illegal. Sales of unstamped little cigars by retailers are illegal, except in accordance with the transition rule discussed below.
The Department has posted a list of little cigar brands to be taxed as cigarettes on its website at www.mass.gov/dor. Any errors or omissions in the list should be brought to the attention of the Department's Cigarette Excise Unit at 200 Arlington Street, Chelsea, MA 02150.
The minimum price requirements of M.G.L. c. 64C will also apply to little cigars. Once the Department has calculated these prices in accordance with M.G.L. c. 64C and 830 CMR 64C.14.1, the Department will post them on its website. n addition, pursuant to M.G.L. c. 64C, § 33A, little cigars must be sold in packs of twenty or more.
Because the fire-safe cigarette requirements of M.G.L c. 64C apply only to tobacco rolled in paper or in any other substance not containing tobacco, little cigars are not required to be fire-safe. In addition, the classification of little cigars as cigarettes under Massachusetts law has no effect on federal law (e.g., for purposes of the Master Settlement Agreement).
Transitional Rule --
Retailers are responsible for the cigarette excise of $2.51 per pack of 20 little cigars on all unstamped packs they may sell, generally from inventory obtained before the law change. Retailers may add $2.51 a pack to their selling price of unstamped packs and claim a credit for the 30 percent cigar excise, if any, that they paid with a Form Cigar-1 for a prior quarter. The Form Cigar-1 for the third quarter of 2008, which the Department will mail to retailers shortly, will have a line for claiming the credit. Retailers must maintain appropriate documentation to substantiate the payment of the excise for which they claim a credit. The Form Cigar-1 for the third quarter of 2008 will be due on or before October 20, 2008.
Note: Unstamped packages of little cigars held by retailers or other non-stampers are subject to seizure by the Department beginning September 1, 2008.
Prepaid Sales Tax on Tobacco Products
Effective September 1, 2008, all retailers of tobacco products (cigarettes, cigars, smoking tobacco and smokeless tobacco) must prepay sales tax on such products to their suppliers. Tobacco retailers must continue to collect and remit sales tax on their sales of tobacco products as they did before the change and may take a credit on their sales tax return in the amount of the prepaid sales tax paid to their supplier for the month for which the return is due. Wholesalers of tobacco products must collect and remit sales tax on their sales of tobacco products to retailers. Wholesalers will report such sales as taxable sales on their sales tax return. Any wholesaler who is not presently registered for the Massachusetts Sales/Use tax should immediately register online at www.mass.gov/dor. Revised Sales/Use Tax returns to accommodate this change will be distributed and posted on the Department's website in time for the filing of the September 2008 return due in October 2008.
Taxation of Cigar and Smoking Tobacco at the Wholesale Level
Section 38 of chapter 182 of the Acts of 2008 amended G.L. c. 64C, § 7B, effective October 1, 2008. Cigars and smoking tobacco have been subject to an excise in Massachusetts since 1996, and, in accordance with TIR 97-1, the excise has been collected from retailers on a quarterly basis. Section 38 moves the imposition of the cigar and smoking tobacco excise from the retail to the wholesale level. (Note: Since "little cigars" as referenced above will be taxed as cigarettes as of July 1, 2008, they will no longer be subject to the cigar and smoking tobacco excise as of that date.) Retailers will no longer be responsible for collecting or remitting the cigar or smoking excise or filing Form Cigar-1, the cigar and smoking tobacco excise return if they have purchased such products from a Massachusetts Licensed Wholesaler that has paid the required excise.
A "cigar distributor," defined in M.G.L. c. 64C, § 7B as a person who imports cigars or smoking tobacco into Massachusetts, must collect the excise from a customer as part of the sale price and submit to the Department a return along with the excise due. The first cigar and smoking tobacco excise return to be completed by cigar distributors will be due on or before January 20, 2009. Again, if any "cigar retailer", as defined in M.G.L. c. 64C, § 7B, has purchased cigars or smoking tobacco from an unlicensed wholesaler, such cigar retailer will be responsible for the excise due.
It is permissible for a retailer to purchase its product directly from a manufacturer, so long as the excise is collected and paid. Anyone who acts as both a cigar distributor and a cigar retailer must have a license for each capacity in which he operates, unless the Department determines otherwise. The Department will make a decision on this issue shortly.
The cigar and smoking tobacco excise rate continues to be 30 percent, but, as of October 1, 2008, the rate will be 30 percent of the "wholesale price," as defined in M.G.L. c. 64C, § 7B.
The Department will send cigar and smoking tobacco wholesalers a return to be completed for the fourth quarter of 2008. Any wholesaler that does not receive a return may download one from the Department's website at www.mass.gov/dor. Taxpayers wishing to file consolidated cigar and smoking tobacco excise returns must contact the Cigarette Excise Unit at (617) 887-5090.
New M.G.L. c. 64C, § 7B subjects any person who sells cigars or smoking tobacco without a license, as well as any person who knowingly purchases or possesses cigars or smoking tobacco that is not manufactured, purchased, or imported by a cigar licensee, to civil penalties. In addition, M.G. L. c. 64C, § 7B authorizes the Department and the police to seize untaxed cigars and smoking tobacco.
Cigar and Smoking Tobacco Dealer Filing and Licensing Requirements
Section 20 of chapter 182 of the Acts of 2008 added a subsection (c1/2) to M.G.L. c. 62C, § 16, which requires every person licensed to sell cigars and smoking tobacco under M.G.L. c. 64C, § 7B to file either a return with the Department, stating the quantity of cigars and smoking tobacco sold in the preceding period.
Sections 27 through 31 of chapter 182 of the Acts of 2008 amended M.G.L. c. 62C, § 67 to require the licensing of cigar distributors and cigar retailers. Cigar retailer licenses will expire every other year, and cigar distributor licenses every year, on dates prescribed by the Department. The Department may issue combined forms of licenses and license applications (e.g., a single license for a retailer of cigars and cigarettes). These provisions take effect on October 1, 2008. The Department will post applications for cigar licenses on its website prior to that date.
The Department may "grandfather" current cigarette licensees that also sell cigars or smoking tobacco. Details will be forthcoming.