| Date: | 12/23/2008 |
|---|---|
| Organization: | Massachusetts Department of Revenue |
| Referenced Sources: | Massachusetts General Laws |
Tax Administration
TIR 08-16 supplements TIR 08-9 and supersedes TIR 97-1
I. Introduction
The Massachusetts Legislature recently amended sections 16 and 67 of G.L. c. 62C, effective October 1, 2008, to require that cigar distributors and retailers be licensed by the Department of Revenue and that licensees file cigar excise returns.
The purpose of this Technical Information Release ("TIR") is to explain how these amendments will be implemented. Other recent changes in the law relating to tobacco products are discussed in TIR 08-7, TIR 08-9, TIR 08-13, and TIR 08-17, all of which are available at www.mass.gov/dor.
II. Law Change
In 1996, Massachusetts imposed an excise on cigars and smoking tobacco at the retail level [1]. At that time the law did not require cigar or smoking tobacco dealers to be licensed. However, section 38 of chapter 182 of the Acts of 2008 rewrote section 7B of G.L. c. 64C to impose the excise at the wholesale level, beginning with sales on October 1, 2008. [2] In conjunction with that change, section 20 and sections 27 through 31 of chapter 182 of the Acts of 2008 amended sections 16 and 67 of G.L. c. 62C, effective October 1, 2008, to require that retailers and distributors of cigars [3] and smoking tobacco be licensed by the Department and that licensees file cigar excise returns.
A. Licensing of Cigar Retailers and Distributors
1. Summary
As of October 1, 2008, every cigar retailer must hold a retailer license issued by the Department, and every cigar distributor must hold a distributor license issued by the Department. However, a retailer who held a valid cigarette retailer license (Form CT-3A) on September 30, 2008 will not be required to obtain a new retailer license, even if it sells cigars. On the other hand, a cigarette wholesaler (including an unclassified acquirer and a transportation company) who held a valid license to sell cigarettes at wholesale (Form CTL) on September 30, 2008 will be required to obtain a distributor license (Form CT-3D) if it also sells cigars on or after October 1, 2008. Penalties apply for a failure to be licensed.
2. Retailer Licenses
A "cigar retailer" is defined in G.L. c. 64C, § 7B as "any person who sells or furnishes cigars or smoking tobacco in small quantities to consumers for individual use," provided that the tobacco products are not used for resale.
The Department will henceforth issue a license to retailers of all types of tobacco products (cigarettes, cigars, smokeless tobacco, and smoking tobacco). A cigar retailer must hold either a Retailer License for Sale of Cigars and Smoking Tobacco or a Retailer License for Sale of Cigarettes, Cigars and Smoking Tobacco. [4] However, a retailer who held a valid cigarette retailer license (Form CT-3A) on September 30, 2008 will not be required to obtain a new retailer license, even if it sells cigars. A holder of a valid cigarette retailer license on September 30, 2008 will be "grandfathered" and need not obtain a new or additional license in order to sell cigars. On the other hand, a retailer of any tobacco product who did not hold a valid license on September 30, 2008 will be required to apply for a retailer license (Form CT-3T).
All cigar retailer licenses will expire on September 30, 2010 and every two years thereafter on September 30. In addition, the Department is automatically extending the expiration date of previously issued cigarette retailer licenses (Form CT-3A) to September 30, 2010. The Department will not issue new licenses to replace existing cigarette retailer licenses on Form CT-3A that indicate an expiration date of June 30, 2010.
There is currently no fee for the Retailer License for Sale of Cigars and Smoking Tobacco. A fee of $50 applies to the Retailer License for Sale of Cigarettes, Cigars and Smoking Tobacco.
Form CT-RL, the application for the Retailer License for Sale of Cigars and Smoking Tobacco and for the Retailer License for Sale of Cigarettes, Cigars and Smoking Tobacco, may be downloaded from the Department's website or may be obtained by calling the Department's Cigarette Excise Unit at 617-887-5090. Form CT-RL is the application form for all retail tobacco licenses.
3. Distributor Licenses
A "cigar distributor" is defined in G.L. c. 64C, § 7B as "(i) any person who imports, or causes to be imported, into the commonwealth cigars or smoking tobacco for sale or who manufactures cigars or smoking tobacco in the commonwealth" and (ii) any person authorized by the Commissioner of Revenue to file returns and pay the excise on cigars sold, shipped, or delivered by him to any person in Massachusetts.
Under Quill Corp. v. North Dakota, 504 U.S. 298 (1992), the Commonwealth may require a taxpayer to collect and pay over sales taxes to Massachusetts if the taxpayer has a "physical presence" in the Commonwealth. Physical presence includes, but is not limited to, stores, offices, sales representatives (including independent agents), or more than a negligible amount of property or equipment. Every cigar manufacturer or wholesaler with a physical presence in Massachusetts who makes sales into Massachusetts must be licensed by the Department as a cigar distributor.
A cigar manufacturer or wholesaler with no physical presence in Massachusetts who makes sales into Massachusetts may voluntarily apply to be licensed by the Department as a cigar distributor pursuant to G.L. c. 64C, § 7B(f). Once licensed, the cigar distributor is subject to section 7B [5] and is therefore liable for the collection and payment of the excise on cigars it sells, ships, or delivers to any person in Massachusetts.
Although a cigar distributor will in many cases be a cigar wholesaler, under § 7B a cigar retailer may also require a cigar distributor license. This is apt to be the case when a cigar retailer purchases cigars from a cigar wholesaler or manufacturer who is based out-of-state and is not licensed as a Massachusetts cigar distributor. If, however, the cigar retailer purchases cigars from a licensed cigar distributor, the retailer will not generally meet the definition of a cigar distributor and need not be licensed as such. Cigar dealers who act as both cigar retailers and cigar distributors must hold both a retailer license and a distributor license. [6] See TIR 08-17 for a more detailed discussion of the situations in which a cigar retailer must hold a cigar distributor license.
Because of the varying sales and distribution arrangements among cigar manufacturers, wholesalers/distributors and retailers, it may not always be clear whether a cigar dealer needs to be licensed as a cigar distributor. Reference must always be made to the statute. Any dealer who is unclear about its classification as a cigar distributor or cigar retailer should contact the Cigarette Excise Unit in writing [7] describing the pertinent facts. Once the Cigarette Excise Unit has all the facts it needs, it will respond by informing the dealer of its proper classification based on the facts presented to it. In the meantime, a cigar dealer who believes it may be a cigar distributor is strongly encouraged to apply for a cigar distributor license. The Cigarette Excise Unit will cancel the license if it is later determined that a cigar distributor license is not required.
In contrast to the licensing scheme at the retail level, the Department will maintain two different licensing (and license application) schemes at the wholesale level. The Department will henceforth issue a Distributor License for Cigars and Smoking Tobacco (Form CT-3D) to all cigar distributors. Cigarette wholesalers (including unclassified acquirers and transportation companies) who held a valid license to sell cigarettes at wholesale (Form CTL) on September 30, 2008, but who will also sell cigars on or after October 1, 2008, will not be "grandfathered" to sell cigars and must apply for a Distributor License for Cigars and Smoking Tobacco. [8]
Distributor Licenses for Cigars and Smoking Tobacco will expire on September 30, 2009 and thereafter on every September 30. There is currently no fee for this license.
Form CT-CDL, the application for the Distributor License for Cigars and Smoking Tobacco may be downloaded from the Department's website or may be obtained by calling the Department's Cigarette Excise Unit at 617-887-5090.
4. Penalties
The Department may impose a civil penalty, as well as any other penalty provided by G.L. c. 62C or G.L. c. 64C, on any person who:
sells cigars, offers cigars for sale, possesses cigars with intent to sell them, or acts as a cigar distributor or cigar retailer, without being licensed by the Department;
knowingly purchases or possesses cigars not manufactured, purchased, or imported by a cigar distributor or cigar retailer who is required to be licensed by the Department, but is not so licensed; or
knowingly sells or solicits orders for cigars to be shipped, mailed, sent, or brought into Massachusetts to anyone other than a licensed cigar distributor or retailer, unless the cigars are to be sold to or through a licensed cigar distributor or retailer.
The civil penalty will range from up to $5,000 for the first offense to $25,000 for every subsequent offense. [9]
B. Filing of Cigar Excise Returns
Section 20 of chapter 182 of the Acts of 2008 added a subsection (c1/2) to G.L. c. 62C, § 16, requiring every person who is licensed to sell cigars under G.L. c. 64C, § 7B to file a return with the Department for each location at which he sells cigars, stating the quantity of cigars sold in the preceding tax period. As a general rule, a cigar distributor is responsible for filing the return. [10]
The return will be due on the twentieth day following the close of each calendar quarter. [11] The initial return will be due on January 20, 2009. If a taxpayer ceases to sell cigars in Massachusetts, it should immediately file a return for that quarter through the date on which it ceased to sell the products marked "Final Return."
The cigar excise return will include a Schedule RYO-2 that requires the taxpayer to list the names of the manufacturer and supplier, the brand name, the dates of purchase, and the quantities, of all roll-your-own tobacco (RYO) it purchased and on which it paid the cigar excise in the preceding quarter. Because RYO is considered to be a "cigarette" for purposes of the Tobacco Master Settlement Agreement (MSA), it is important that every taxpayer submit an accurate, complete, and signed Schedule RYO-2 with every return, even if it did not purchase or pay the excise on any RYO in the preceding quarter. Only brands of RYO included in the Tobacco Product Manufacturer Directory (the Directory), which can be found on the Department's website at www.mass.gov/dor, may be legally sold in Massachusetts. A taxpayer's failure to file, complete, or sign a Schedule RYO-2 or its listing on the Schedule RYO-2 of a brand of RYO not included in the Directory may result in the imposition of penalties by the Department or an inquiry from the Office of the Massachusetts Attorney General, which enforces compliance with the MSA in Massachusetts.
The cigar excise return (Form Cigar-2) will be available on the Department's website or by calling the Department's Cigarette Excise Unit at 617-887-5090. After a taxpayer has filed its initial return, the Department will mail a Form Cigar-2 to it each quarter in advance of the filing date.
/s/Navjeet K. Bal
Navjeet K. Bal
Commissioner of Revenue
NKB:MTF:ar
December 23, 2008
TIR 08-16