Requiring the Cigarette Tax to be Paid by Stamping Packaging

Companion bills S.595 and H.4151 change the method by which the cigarette tax is paid. Under current law, the cigarette tax is payable by distributors, who are required to make a monthly report of cigarette sales to the Department of Revenue (DOR) and pay the corresponding taxes. Distributors are also required to apply for a license permitting them to purchase cigarettes tax-free and sell them to retailers, reporting and paying the corresponding taxes on a monthly bases.

These bills strike that section of the code, replacing it with the direction that the tax be paid by attaching stamps to each package of cigarettes by the distributors before being sold or shipped elsewhere. Only manufacturers and importers who hold a permit are allowed to receive, hold, or ship unstamped packages of cigarettes.

Unstamped cigarettes may be sold only to licensed cigarette distributors from other states, for the purpose of resale in those states. Cigarettes are exempted from the tax if they are sold for military use, or sold to ships engaged in foreign or coastwise shipping. In this case, the packages should have stamps indicating their tax-exempt status. The DOR may also offer a tax credit to cover the acquisition of stamping equipment purchased within a year of implementation by the DOR. The credit is issued after the purchase of the equipment and continued for the following 17 months.

The DOR may also appoint cigarette manufacturers and distributors as stamping agents, who are compensated with a small percentage of the stamp revenue collected.

This is likely an effort on the part of the General Assembly to lessen cigarette tax evasion. However, the costs of implementation are unlikely to generate enough additional revenue to make the new method worthwhile, especially considering the additional burden of compliance placed on distributors.

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