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Business Taxes Law Guide – Revision 2022
 

Cigarette and Tobacco Products Tax Annotations


Cigarette

Smokeless Cigarettes. "Flavor", a brand of smokeless cigarette which is made in part of tobacco or a tobacco derivative, is not designed for smoking and is therefore not a cigarette as defined in Revenue and Taxation Code Section 30003. 05/27/86.


Indians—Sections 30101, 30123, and 30131.2

Sale of Cigarettes to Indians. A non-Indian cigarette distributor who sells cigarettes to an Indian tribe or an Indian residing in Indian country must pay the cigarette tax through the application of stamps to the cigarette packs regardless of whether the cigarettes are for resale to enrolled Indians residing in Indian country. 3/16/99 (2000–1).


Partnership

Partnership Liability. The Uniform Partnership Act imposes joint and severally liability on all partners for wrongful acts or omissions of one partner, provided that partner is acting in the ordinary course of business of the partnership. If a partnership exists, then all of the general partners are liable for the debts of the partnership. It does not matter that one of the partners is a dormant or silent partner. 1/27/97.


Prosecuting Jurisdiction. Local law enforcement agencies do not prosecute and, therefore are not "prosecuting jurisdictions" entitled to the penalty allocation provided by Revenue and Taxation Code Section 30474 for the cost of prosecution. However, where such agencies have played a significant role in the successful prosecution of a case, the Board is not prohibited from informing such agencies that they can request a part of the prosecutor's allocation and/or recommending such allocation sharing.

The Office of the Attorney General can be considered to be the local prosecuting jurisdiction entitled to the penalty allocation where it, and not the district attorney, prosecutes the tax evasion case. 2/23/95.


Rate of Tax; Tobacco Products—Section 30123(b)

Wholesale Cost of Manufactured Cigar. When a retailer purchases raw goods at wholesale and manufactures cigars on the retailer's premises, the retailer is selling the cigar as the finished product. As such, a tax base must be determined which reflect not only the cost of the raw goods, but also labor, overhead, and markup. The wholesale cost of the manufactured cigar is computed by determining the wholesale cost of a cigar of similar size and quality that is available for purchase at the wholesale level. This figure is used as the fair market value of the cigars made at the retailer's premises. 2/7/96.


Seized Inventory

Retail Stock. Untaxed cigarette and tobacco products held in retail stock and seized as part of investigations of tax evasion are subject to the Cigarette and Tobacco Products Tax. Generally, retail stock includes inventory located at the taxpayer's retail place of business such as product displayed for retail sale or stored beneath sales counters in back room offices, or in any other place on the premises of the retail establishment.

Generally, product found outside of the retail business, including product found at the taxpayer's residence, off-site public storage facilities or "in transit," is not considered part of retail stock.

Product seized in such small quantities as to clearly be for personal use is not considered part of retail stock. 7/18/97.


Tobacco Products—Section 30121(b)

Bulk Tobacco. Bulk tobacco is unfinished tobacco that is not in consumer packaging or portioning. A manufacturer may process bulk tobacco into a finished condition and package it for consumers. Bulk tobacco is a tobacco product as defined in Section 30121(b) because it contains tobacco and it is intended for human consumption after it is manufactured into a finished tobacco product. It is not a statutory requirement that the tobacco be a finished product in order to be a tobacco product pursuant to Section 30121(b). 1/2/20.


Measure for Tax for Tobacco Products. The rate of the tobacco products tax is required by Revenue and Taxation Code Section 30123 to be "based on the wholesale cost of these products … which is equivalent to the combined rate of tax imposed on cigarettes … " . Since the calculated wholesale cost of cigarettes does not include the cost of incoming freight charges, the wholesale cost of tobacco products should also exclude freight. 4/20/89.


Package of Cigar Wraps. A distributor sells three cigar wraps together in a single package. The package contains one natural leaf cigar wrap, composed entirely of tobacco, which meets the statutory definition of a tobacco product. The package also contains two homogenized tobacco leaf wraps that contain less than 50 percent tobacco and do not meet the statutory definition of tobacco products. If the distributor can establish through documentary evidence, such as purchase invoices, the actual wholesale cost of the natural leaf wrap, the Board would accept that the tax could be reported on the actual wholesale cost of the natural leaf wrap (the tobacco product). Because it is assumed that the cost of the natural leaf wrap is much higher than the wraps that are not tobacco products, if the distributor is unable to establish through documentary evidence the actual wholesale cost of the leaf wrap, the Board assumes the wholesale cost of the package is subject to tax. 10/22/09.


Tobacco Products—Tobacco Content. The Cigarette and Tobacco Products Tax applies to all forms of cigars, smoking tobacco, chewing tobacco, and snuff, regardless of the amount of tobacco they contain. In addition, the tax applies to any other articles or products which are made entirely of tobacco or contain at least 50 percent tobacco, excluding cigarettes. 9/27/96.


Tobacco Products—Chewing Gum. Chewing gum containing any tobacco is chewing tobacco and is therefore subject to the Cigarette and Tobacco Products Tax. 9/27/96.


Note.— For the purposes of defining "Tobacco Products" under Part 13, Division, 2, Chapter 2, Article 2 of the Revenue and Taxation Code, this Cigarette and Tobacco Products Tax annotation is valid and applicable through March 31, 2017. Effective April 1, 2017, Proposition 56 amended section 30121(b) of the Revenue and Taxation Code to change the definition of tobacco products to:

"Tobacco products" includes, but is not limited to, a product containing, made, or derived from tobacco that is intended for consumption, whether smoked, heated, chewed, absorbed, dissolved, inhaled, snorted, sniffed or ingested by any other means, including, but no limited to, cigars, little cigars, chewing tobacco, pipe tobacco, or snuff, but does not include cigarettes. Tobacco Products shall also include electronic cigarettes. Tobacco products shall not include any product that has been approved by the United States Food and Drug Administration for a sale as a tobacco cessation product or for other therapeutic purposes where that product is marketed and sold solely for such approved use. Tobacco products does not include any food products as that term is defined pursuant to Section 6359.