TIR 08-13 supplements TIR 08-9

I. Introduction

The Massachusetts Legislature recently amended G.L. c. 64H to require wholesalers of tobacco products (cigarettes, cigars, smokeless tobacco and smoking tobacco) to collect and prepay sales tax on wholesale sales of those products to be sold at retail, effective September 1, 2008.

The purpose of this Technical Information Release ("TIR") is to explain how this amendment will be implemented. Other recent changes in the law relating to tobacco products are discussed in TIR 08-7 and TIR 08-9, which are available at www.mass.gov/dor.

In the absence of a written ruling from the Commissioner of Revenue, the methodology set forth in this TIR will govern the procedure for the prepayment of the sales tax.

II. Law Change

Section 40 of chapter 182 of the Acts of 2008 created a new section 3A in G.L. c. 64H, which requires wholesalers of tobacco products (cigarettes, cigars, smokeless tobacco and smoking tobacco) to collect and prepay sales tax on wholesale sales of those products to retailers, beginning with sales on September 1, 2008.

New G. L. c. 64H, § 3A requires that every person selling tobacco products to others for resale in Massachusetts pay the sales tax on such products held for retail sale. The sales tax will be calculated on each sale by multiplying the sales tax rate set by G.L. c. 64H, § 2 (currently 5 percent) by the price at which such person sells the tobacco products at wholesale. The amount of the sales tax must be separately stated on the customer invoice or other record. Section 3A does not apply to manufacturers and unclassified acquirers to the extent they distribute tobacco products through a licensed wholesaler or unclassified acquirer.

Retailers should continue to collect sales tax on retail sales of all tobacco products. Section 3A allows a retailer of tobacco products to deduct the amount of the sales tax paid to its tobacco wholesalers from the total amount of sales tax on all taxable items due by the retailer for that period. The Department of Revenue is revising the sales tax returns to accommodate this deduction.

Beginning September 1, 2008, a tobacco wholesaler must include the amount of any excise it has paid on a tobacco product in the wholesale price of that product when the wholesaler calculates the 5 percent sales tax on its tobacco sales. As discussed in Section B of TIR 08-9, cigars and smoking tobacco will be taxed at the wholesale level beginning October 1, 2008. Therefore, wholesalers must include the 30 percent cigar and smoking tobacco excise in the wholesale price when calculating the sales tax on sales of those products occurring on or after October 1, 2008.

A booklet explaining the Massachusetts sales tax, "A Guide to Sales and Use Tax," is available at www.mass.gov/dor.

III. General

A. The holding or presentation of a valid Massachusetts Sales Tax Resale Certificate does not relieve either the retailer or the wholesaler of its obligation to comply with the prepaid sales tax law.

B. All vendors that normally receive sales tax coupon booklets through the mail will receive new coupons through the mail. New sales tax returns will also be available at www.mass.gov/dor.

C. The inclusion of prepaid sales tax on a wholesaler's sales tax return may affect the frequency with which it must file its sales tax returns. Pursuant to 830 CMR 62C.16.2(4), every vendor whose sales and use tax liability (excluding the sales tax on meals) is reasonably estimated to be more than $1,200 for the calendar year must file monthly sales tax returns.

D. A wholesaler of tobacco products should include its gross receipts from the sale of tobacco products to retailers on the line for taxable sales on its sales tax return.

E. Every Massachusetts sales tax return will include a line on which retailers may take credit for the prepaid sales tax with respect to tobacco products. However, only retailers engaged in the business of selling tobacco products may fill in that line. Every retailer must maintain records substantiating the amount of sales tax prepaid.

F. Every wholesaler of tobacco products to retailers must separately state on each customer invoice or other written record the amount of prepaid sales tax charged. The Department has not prescribed a form for this purpose. Any failure to separately and clearly state in writing the amount of prepaid sales tax charged should be reported to the Department's Customer Service Bureau by calling 617-887-MDOR (6367), by logging onto www.mass.gov/dor, or by writing to the Customer Service Bureau at P.O. Box 7010, Boston, MA 02204.

G. A single legal entity acting as both a wholesaler and a retailer is generally required to file only one sales tax return for each tax period. See the Examples in Section IV.

H. If a wholesaler and a retailer are separate legal entities, each is generally required to file a separate sales tax return for each tax period. See the Examples in Section IV.

I. Every wholesaler of tobacco products engaged in business in the Commonwealth that is not currently registered to file a Massachusetts sales tax return must register through the Department's WebFile for Business application at www.mass.gov/dor.

J. Every cigarette stamper appointed by the Commissioner of Revenue pursuant to G.L. c. 64C, § 30 must register for the Massachusetts sales tax and must comply with the prepaid sales tax law.

K. Pursuant to G.L. c. 64C, § 7B, [1] out-of-state cigar distributors may apply for Massachusetts nonresident cigar distributor licenses. The applicant must file proof that it has appointed the state secretary as its agent for service of process, and it must agree to submit its books, accounts, and records for examination in the Commonwealth by the Commissioner. Once licensed, a nonresident cigar distributor must also register for the Massachusetts sales tax and comply with the prepaid sales tax law.

L. Questions about this TIR, the implementation of the prepaid sales tax, or registration for the Massachusetts sales tax should be directed to the Department's Customer Service Bureau.

IV. Examples

The Examples in this Section IV illustrate how the change in the law described in Section II will be implemented. They describe only the most common situations. Taxpayers may fall within two or more Examples. A taxpayer that has questions regarding which Example applies to its situation should contact the Department's Customer Service Bureau.

A. Wholesaler And Retailer Separate Legal Entities/Both Located In Massachusetts

Example A

Wholesaler A sells tobacco products at wholesale to Retailer A. Wholesaler A and Retailer A are separate legal entities located in Massachusetts. Wholesaler A must collect and prepay the sales tax on the wholesale sales price of all tobacco products it sells to Retailer A. Retailer A must report all its taxable sales, including, but not limited to, its sales of tobacco products, on its sales tax return at their retail price. However, Retailer A may take a credit on its sales tax return for the entire amount of the sales tax it prepaid to Wholesaler A with respect to tobacco products in that tax period.

B. One Legal Entity Located In Massachusetts

Example B1 - Sales At Retail Only

Retailer B operates a chain of retail stores in Massachusetts. Together they constitute a single legal entity. Retailer B receives unstamped cigarettes from manufacturers and stamps them exclusively for its chain stores. Retailer B distributes tobacco products, including the stamped cigarettes, to its chain stores, which sell the products at retail to consumers. Retailer B must report all its taxable sales at retail at their retail price, including, but not limited to, its sales of tobacco products, on its sales tax return. Retailer B would file a single Massachusetts sales tax return for the tax period, and it would have no credit for prepaid sales tax to take on its return for that tax period.

Pursuant to G.L. c. 64C, § 30, a stamper must also be a licensed manufacturer, wholesaler, vending machine operator, or unclassified acquirer. As a stamper for its chain stores, Retailer B has a cigarette wholesaler license because the definition of "wholesaler" in G.L. c. 64C, § 1 includes "any chain of stores retailing tobacco products to the consumer, provided seventy-five per cent of its purchases are made direct from the manufacturer." Therefore, Retailer B is designated a "stamper/wholesaler" by the Department. As a licensed wholesaler, Retailer B is not required to prepay sales tax to a manufacturer or supplier that delivers tobacco products to Retailer B's warehouse or to its chain stores. [2]

Example B2 - Sales At Wholesale And At Retail

The facts are the same as in Example B1, except that, in addition to distributing tobacco products to its chain stores for sale to consumers, B sells tobacco products at wholesale to retailers that are separate legal entities from B. B is therefore both a retailer and a wholesaler, and, as such, it must collect and prepay the sales tax on the wholesale sales price of all tobacco products it sells to other retailers as well as collecting and paying over sales tax with respect to its own retail sales. It would report all its taxable sales, including, but not limited to, its sales of tobacco products, on its sales tax return at their wholesale or retail price, as appropriate. B is not required to file a separate return for the prepaid sales tax it collected or to remit those collections to the Department before the normal due date of its sales tax return for that period. B would file a single Massachusettssales tax return for the tax period, and it would have no credit for prepaid sales tax to take on its return for that period. However, a non-chain retailer to which B sold tobacco products may take a credit on its sales tax return for the amount of the sales tax it prepaid to B with respect to tobacco products in that tax period.

C. Wholesaler And Retailer Separate Legal Entities/Wholesaler Not Registered For Massachusetts Sales Tax

Example C

Wholesaler C sells tobacco products at wholesale to Retailer C. Wholesaler C and Retailer C are separate, unrelated legal entities. Wholesaler C is located outside Massachusetts; it is not registered or required to be registered for Massachusetts sales tax. It is neither a Massachusetts cigarette stamper nor a licensed nonresident cigar distributor. Retailer C is located in Massachusetts. Wholesaler C does not collect and prepay the sales tax on its sales of tobacco products to Retailer C. Retailer C must report all its taxable sales, including, but not limited to, its sales of tobacco products, on its sales tax return for each tax period. It would have no credit for prepaid sales tax to take on its return. In this instance Retailer C is not affected by the change in the law. [3]

/s/Navjeet K. Bal
Navjeet K. Bal
Commissioner of Revenue

NKB:MTF:agr

September 18, 2008

TIR 08-13



[1] Section 38 of chapter 182 of the Acts of 2008 rewrote G.L. c. 64C, § 7B, effective October 1, 2008.

[2] New G.L. c. 64H, § 3A provides that the prepaid sales tax does not apply to manufacturers and unclassified acquirers to the extent they distribute tobacco products through a licensed wholesaler or unclassified acquirer.

[3] If, however, Wholesaler C were a Massachusetts stamper or licensed nonresident cigar distributor, it must register for Massachusetts sales tax and comply with the prepaid sales tax law. In that case, it must collect and prepay the sales tax on all sales of tobacco products to Retailer C at the actual selling price for each tax period and remit the tax to the Department with a completed Massachusetts sales tax form. Retailer C could then take a credit on its sales tax return for the amount of the sales tax it prepaid to Wholesaler C with respect to tobacco products in that tax period.