Introduction:

The Commissioner of Revenue ("Commissioner") is responsible for the enforcement of cigarette taxation in Massachusetts pursuant to General Laws chapter 64C. In addition to his obligation to collect the cigarette excise and the sales tax through Massachusetts stampers and licensees who distribute cigarettes and other tobacco products within the Commonwealth, the Commissioner is also responsible for collecting the cigarette excise upon cigarettes entering this state from all sources of interstate commerce, which include, without limitation, mail order, Internet, and cross-border purchases.

Issue:

What is the tax obligation of Massachusetts residents and entities that purchase, either out-of-state or in-state, cigarette packs or cartons that have no Massachusetts cigarette excise stamp or are stamped by another state or jurisdiction?

Directive:

Massachusetts residents and entities are required to pay the cigarette excise upon all cigarettes that they acquire from any source that do not already bear a Massachusetts excise stamp. The Massachusetts Legislature has recently enacted legislation mandating the collection of the excise from all purchasers of cigarettes intended for consumption in this state regardless of the source from which they have been purchased and regardless of any representation by the seller that they are "tax-free".

Discussion:

As a general rule, cigarettes purchased by Massachusetts residents from any source within or outside Massachusetts and consumed in this state are subject to the payment of the Massachusetts cigarette excise. The amount of the current excise is $1.51 per package of 20 cigarettes or $15.10 for a standard ten-pack carton.

When purchased within the state from Massachusetts licensed retailers, cigarette packages currently bear a distinctive dark pink excise stamp at the bottom of the pack. The stamp evidences that the cigarette excise has been paid and has been passed on to the consumer. The consumer pays the excise as part of the purchase price charged by the Massachusetts retailer.

Cigarettes purchased from non-Massachusetts licensee sources may either have no stamp on the package or have the stamp of another jurisdiction. The lack of any stamp or the stamp of another state or jurisdiction means that the Massachusetts cigarette excise has not been paid. When unstamped packages of cigarettes enter Massachusetts for the purpose of being consumed by a Massachusetts resident, the purchaser is obligated to pay the entire Massachusetts excise. If a package of cigarettes is stamped by another jurisdiction, the purchaser is obligated to pay the difference between the cigarette excise paid to the other jurisdiction and the amount of the Massachusetts excise. No credit may be taken for any non-cigarette excise paid such as sales or use tax.

Massachusetts residents are required to file with the Commissioner Form CT-11, Non-Stamper Cigarette Excise Return on a quarterly basis if they have purchased packs or cartons of cigarettes that are either unstamped or stamped by another state or jurisdiction. The return is required to be filed for quarterly periods ending on March 31, June 30, September 30, and December 31. Each completed, signed and dated quarterly return, along with payment in full of the excise owed, must be received not later than the twentieth day of the month following the end of each calendar quarter in which purchases of cigarettes, bearing no Massachusetts excise stamp, from any source were made. Residents claiming credits for cigarette taxes paid to another state must furnish proof of payment of such excise with the return. This return may be obtained on the Department's website at www.mass.gov/dor or by calling the Department's Taxpayer Services Division at (617) 887-6367 or toll-free in state at 1-800-392-6089.

Failure to voluntarily file returns and to pay the excise owed will result in assessments of the excise under the provisions of § 26(d) of chapter 62C in which case the Commissioner may assess the excise according to his best information and belief and without prior notice of his intention to assess. Along with the tax, the purchaser will be liable for statutory late file and late pay penalties under sections 33(a) and (b) of chapter 62C. Interest will accrue upon such assessments under section 32 of chapter 62C until the assessment is paid in full. Additional penalties under section 33(c) of chapter 62C may accrue for the failure to pay the tax within thirty days following the assessment. The Commissioner may assess the cigarette excise for any past periods for which no returns have been filed and may choose to audit purchasers, including those whose returns do not accurately reflect the quantities purchased as shown on the monthly reports sent to the Commissioner under the Jenkins Act. The Jenkins Act, 15 USC §§ 375-378, is a federal statute pursuant to which an unlicensed seller of cigarettes that ships cigarettes into Massachusetts is required to report the names and addresses of each Massachusetts customer to whom it has sold any cigarettes in the prior month and is further required to disclose the quantities and brands of the cigarettes sold. The Commissioner receives these reports monthly.

The Commissioner may assess additional civil penalties up to $5,000 for the possession of unstamped cigarettes by non-licensed individuals or entities. The Commissioner may also refer matters involving larger quantities of unstamped cigarettes to the Office of the Attorney General for criminal prosecution, which include penalties up to $5,000 and imprisonment for up to five years.

/s/Alan LeBovidge
Alan LeBovidge
Commissioner of Revenue

AL:DMS:jet

November 26, 2002

DD 02-14