Industry Topics

General

California Tobacco Directory

It is illegal to distribute, sell, offer, or possess for sale cigarettes and roll-your-own tobacco products in California if the manufacturer, brand family, and brand style are not listed on the California Tobacco Directory (Directory). It is also illegal to affix a California tax stamp on cigarettes or pay the California excise tax on roll-your-own tobacco unless the manufacturer, brand family, and brand style are listed on the Directory. All cigarettes and roll-your-own tobacco products and their manufacturers must be included on the Directory before such products may be lawfully distributed, sold, offered for sale, or possessed for sale in California.

Retail Stock

Cigarette and Tobacco Products Tax Regulation 4001 further clarifies and defines retail stock for cigarette and tobacco products tax purposes. The cigarette and tobacco products tax (excise tax) is imposed on the distribution of untaxed cigarette and tobacco products in this state. A distribution includes, among other things, placing of untaxed cigarette and tobacco products in retail stock for purposes of selling the products to consumers.

What is considered retail stock?

• Retail stock includes cigarette and tobacco products that are stored in the area where retail sales are made and available for sale to consumers by a person who holds a retailer's license.
• If you hold both a California distributor's license and a retailer's license, purchase untaxed products, and only make retail sales to consumers; then all cigarette and tobacco products in your inventory are considered retail stock, distributed in this state, and the excise tax is due (regardless of where the product is placed or stored). All cigarette packs placed in retail stock must have a cigarette tax stamp affixed.
• If you hold both a California distributor's license and a retailer's license, purchase untaxed products, and make sales to licensed distributors, wholesalers, or retailers; then the untaxed cigarette and tobacco products that are placed or stored in the area where retail sales are made are considered to be retail stock, distributed in this state, and the excise tax is due. All cigarette packs placed in retail stock must have a cigarette tax stamp affixed. However, the untaxed cigarette and tobacco products that are securely stored away from the area where retail sales are made are not considered retail stock. The untaxed products must be in the original manufacturer's packaging, with an unbroken seal, and they must be secured, segregated, and separated from your entire retail inventory, including your tax-paid products that you store or hold in areas not accessible to consumers.

Examples of secured, segregated, and separated from retail stock include, but are not limited to, the following areas:

• a secured store room or closet;
• a secured back office;
• inside a locked cabinet, safe or other similar storage container; or
• behind a locked wire-cage door or similar encumbrance.

Walk-in humidors

Tobacco products placed inside a walk-in humidor displayed for sale to consumers are considered retail stock. If you hold both a California distributor's license and a retailer's license, purchase untaxed tobacco products, and only make retail sales to consumers, your entire inventory is considered retail stock, whether or not the untaxed tobacco products are separately stored away. The excise tax is due immediately upon placing the untaxed tobacco products in retail stock.

If you hold both a California distributor's license and a retailer's license and you sell to other tobacco products licensees in addition to consumers, untaxed tobacco products are not considered retail stock if the product is placed in a walk-in humidor in the original manufacturer's packaging with an unbroken seal, secured, segregated, and separated from retail stock, and not on display for sale to consumers.

Examples of secured, segregated and separated from retail stock include, but are not limited to, the following areas:

• inside a locked cabinet, safe, or similar secured storage container, or
• behind a locked wire-cage door, or similar encumbrance.

Presumption of Distribution

It is presumed that all cigarette and tobacco products no longer in a distributor's possession have been distributed. Unless the contrary is established, this presumption includes instances where cigarette and tobacco products have been lost through an unexplainable disappearance.

You can rebut this presumption by demonstrating that an explainable disappearance, such as theft, has occurred. However, product placed in retail stock is already distributed and there is no presumption that may be rebutted.

Examples of evidence that may overcome the presumption include, but are not limited to:

• Timely police reports (required)
• Insurance claims
• Insurance reimbursements
• Cigarette and tobacco purchase invoices (required)
• Video surveillance footage
• Photographs
• Detailed tobacco inventory reports
• Proof of prosecution for theft of cigarettes and tobacco products

Master Settlement Agreement

The Master Settlement Agreement (MSA) is a legal contract between 46 states, including California, and five U.S. Territories, with participating tobacco manufacturers. The contract was entered into in 1998, in settlement of various lawsuits, and provides for the allocation of funds to states and certain territories. The MSA restricts cigarette advertising and marketing by participating tobacco manufacturers in various ways, including a ban on cartoons in tobacco advertisements, youth exposure to sampling, certain sponsorships, and most outdoor advertisements.

Revenue and Taxation Code (R&TC) section 30165.1 requires the Attorney General to compile and publish a directory of cigarette and RYO tobacco manufacturers and brand families. A person may not sell, offer, possess for sale, or import for personal consumption any cigarettes or RYO tobacco in California unless the manufacturer and brand family are listed in that directory (except if the product is solely for sale out-of-state). In addition, it is illegal for any person to affix or cause to be affixed any tax stamp or meter impression to a pack of cigarettes or pay the tax on RYO tobacco unless the tobacco products manufacturer and brand family are listed in the directory. Cigarettes or RYO tobacco not listed on that directory are subject to seizure by CDTFA and law enforcement agencies. The Attorney General posts the California Tobacco Directory online on their California Tobacco Directory page. You can also subscribe to receive Tobacco Directory Notices by providing your email address on the Attorney General's California Tobacco Directory webpage or by sending an email to their directory subscription mailbox. You will receive an email acknowledging that the Attorney General has received and recorded your email address.

The Attorney General must provide distributors and wholesalers with written notice of any changes to the directory after it is first published (R&TC section 30165.1(c)(3)). Distributors and wholesalers are required to provide the written notices received from the Attorney General to their customers. For more information, see publication 407, Master Settlement Agreement.

Anyone that violates these provisions may be subject to civil and criminal penalties and the seizure of any noncompliant product. In addition, we may revoke or suspend your license. For additional information on the citation process under this Licensing Act, see publication 152, Cigarette and Tobacco Products Inspections, and publication 161, Criminal Citations Include A Civil Administrative Process.

Inspections

Routine inspections are conducted to ensure compliance with California state laws that control the sale of cigarettes and tobacco products in California. These inspections are authorized by the California Cigarette and Tobacco Products Licensing Act of 2003 (Division 8.6 of the California Business and Professions Code), Cigarette and Tobacco Products Tax Law (Part 13, Division 2 of the Revenue and Taxation Code), and the California Cigarette Fire Safety and Firefighter Protection Act (Division 12 of the California Health and Safety Code). For more information on the inspection process, please watch the What To Know About Your Cigarette and Tobacco Products Inspection video to learn the process, see publication 152, Cigarette and Tobacco Products Inspections and the Cigarette and Tobacco Products Inspections Program webpage.

Inspectors make sure that:

• You have a valid Cigarette and Tobacco Products license according to the Licensing Act and Tax Law and any other business permits or licenses that may be required.
• You conspicuously display your licenses at each location in a manner visible to the public (retailers only).
• You keep purchase and/or sales invoices at each licensed location for at least one year after the date of purchase.
• You bought your cigarettes and tobacco products from a CDTFA-licensed cigarette and/or tobacco products distributor, wholesaler, manufacturer, or importer (sales between retailers are prohibited) and have supporting purchase invoices for your inventory.
• The cigarettes in your inventory:
  • Have valid California tax stamps attached,
  • Do not include menthol cigarettes (retailers only),
  • Are listed on the California Tobacco Directory as legal to sell in California (RYO tobacco must also be listed on the directory), and
  • Comply with the “low ignition propensity” fire safety requirements of California.
• The California tobacco products tax was paid on your other tobacco products.
• The STAKE Act signage is displayed at each cash register and other points of sale.

Please note: California distributors may be in possession of menthol cigarettes, unlisted cigarettes, or unlisted RYO tobacco if sales and delivery of these products are made only to out-of-state customers.

Enforcement and Penalties

Our inspectors have the authority to inspect any location where cigarettes or tobacco products are sold, produced, or stored and any site where there is evidence of tax evasion related to cigarette or tobacco products or non-compliance with the MSA (R&TC section 30435). To see a list of MSA compliant manufacturers and brands, check the California Tobacco Directory. Upon entering your business, our inspectors will present their official identification and credentials to you or your employees. Any person who refuses to allow an inspection is guilty of a misdemeanor and is subject to a fine.

Our inspectors and law enforcement officers may inspect your location and seize any untaxed cigarettes and/or tobacco products, including cigarettes without tax stamps, with stamps from other states, or with counterfeit or reused tax stamps; non-MSA compliant cigarettes or RYO tobacco; and/or tobacco products upon which tax is due but has not yet been paid to us. Any retailer or wholesaler in possession of untaxed cigarettes and/or tobacco products is subject to penalties such as suspension or revocation of its license and/or imprisonment, or both.
Please note: Distributors may possess cigarettes stamped with other state stamps, unlisted cigarettes, or unlisted RYO tobacco if sales and delivery of these products are made only to out-of-state customers.

To help prevent cigarette tax evasion, CDTFA was given the authority (Assembly Bill 1901) to seize and destroy any "unaffixed" cigarette tax stamps aggregated for reuse (for example, a collection or accumulation of "unaffixed" stamps for reapplying to untaxed packs of cigarettes). Effective January 1, 2017, it is a misdemeanor for any person to possess, sell or offer to sell, or buy or offer to buy, any false, fraudulent, or "unaffixed" cigarette tax stamps. For purposes of this law, "unaffixed stamps" means tax-paid cigarette tax stamps purchased by a licensed distributor and previously affixed to cigarette packs. For more information about our inspections and your rights, see publication 152, Cigarette and Tobacco Products Inspections.

You may be subject to civil and criminal penalties and the seizure and/or forfeiture of any noncompliant product if you violate any of the provisions of the:

• Cigarette and Tobacco Products Licensing Act of 2003, or
• Cigarette and Tobacco Products Tax Law, or
• R&TC section 30165.1, Master Settlement Agreement compliance.

Any person who intentionally evades the reporting, assessment, or payment of cigarette or tobacco products taxes that would otherwise be due is guilty of cigarette or tobacco products tax evasion. Evasion of tax liabilities over $25,000 in a 12-month period is a felony.

For more information about our cigarette and tobacco products inspection program, citation appeal process, tax evasion, Licensing Act violations, or to file a complaint and report tax evasion, see publication 161, Criminal Citations Include A Civil Administrative Process, or visit the Investigations Bureau's Cigarette and Tobacco Products Inspection Program webpage and Report Tax Evasion webpage.

Mobile Sellers

A “mobile location” does not meet the definition of a retail location.

If you operate from a catering truck, lunch wagon, or other mobile facility, you may not hold a California Cigarette and Tobacco Products Retailer's License and therefore, cannot sell cigarettes or tobacco products from your truck, wagon, or other mobile facility in California.

Flavored Cigarettes and Roll-Your-Own Tobacco Banned in the United States

Effective September 22, 2009, cigarettes and RYO tobacco that contain certain characterizing flavors (excluding menthol) are considered adulterated and are banned from manufacture, import, or sale in the United States.

For additional information, see publication 429, Flavored Cigarettes Banned in the United States.

Engaged in Business in this State (California)

“Engaged in business in this state” (RTCsection 30108) means any of the following:

• Maintaining, occupying, or using, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent, by whatever name called, an office, place of distribution, sales or sample room or place, warehouse, or storage place, or other place of business.
• Having any representative, agent, salesperson, canvasser, or solicitor operating in this state under the authority of the distributor or its subsidiary for the purpose of selling, delivering, or the taking of orders for cigarettes or tobacco products.

If you are an out-of-state seller who is engaged in business in California and selling cigarettes or tobacco products, including cigars, to any person other than a licensed cigarette and tobacco products distributor, such as a licensed cigarette and tobacco products wholesaler or retailer, or a consumer, you are required to register with us for the appropriate cigarette and tobacco products distributor licenses and tax accounts and collect the taxes required. If you are an out-of-state seller who is not engaged in business in California and are selling cigarettes or tobacco products, including cigars, to a person other than a licensed cigarette and tobacco products distributor, such as a licensed cigarette and tobacco products wholesaler or retailer, or a consumer, you may voluntarily register with us for the appropriate cigarette and tobacco products distributor licenses and tax accounts to collect the taxes required. Out-of-state sellers of cigarettes or tobacco products to California consumers should read the information contained in the Delivery Sellers topic.

Notes

1. A California Electronic Cigarette Excise Tax (CECET) permit (account) is required if you sell electronic cigarettes containing or sold with nicotine to consumers. For more information, see the Tax Guide for California Electronic Cigarette Excise Tax.

Delivery Sellers

A delivery seller is any person who makes a delivery sale (R&TC section 30101.7).

A delivery sale means the sale of cigarettes or tobacco products (except cigars) into and within California when any of the following are true:

1. The consumer submits the order via the Internet or other online service, telephone or other voice transmission, or mail.
2. The seller and consumer are not in the physical presence of each other when:
   • The consumer makes the purchase or order, or
   • The consumer takes possession of the cigarettes or tobacco products.
3. The cigarettes or tobacco products are delivered to the consumer by common carrier, private delivery service, or other remote delivery method.

Notes

1. If you are located in a state other than California within the U.S. and engaged in business in this state per R&TC section 30108 and selling cigars to consumers located in California, you still must be registered with us as a tobacco products distributor, but you are not required to have a PACT Act account with us because the PACT Act and R&TC section 30101.7 do not apply to cigars. For more information about being engaged in business in California, see our industry topic Engaged in Business in this State.
2. Generally, businesses located in California do not have a PACT Act registration and reporting requirement with us, unless you sell, transfer, ship, or advertise cigarettes, roll-your-own tobacco, smokeless tobacco, or electronic nicotine delivery systems (ENDS) in interstate commerce into California. For more information, see PACT Act & Consumer section.
3. A California Electronic Cigarette Excise Tax (CECET) permit (account) is required if you sell eCigarettes containing or sold with nicotine to consumers. For more information, see our Tax Guide for California Electronic Cigarette Excise Tax.

Vapes and Electronic Cigarettes (eCigarettes) — Examples of Who is Required to Register

Examples of what type of license(s) are required (in addition to a Seller's Permit):

Retailers

Example 1: Retailer A only sells eLiquid or eJuice products that do not contain nicotine or tobacco.

• Regardless if the eLiquid or eJuice products contain nicotine or tobacco or not, Retailer A is required to register with us for a Cigarette and Tobacco Products Retailer's License.

Example 2: Retailer B sells tax-paid vape liquids that contain nicotine and no other tobacco products such as cigars, chew, or snuff.

• Retailer B is required to register with us for a Cigarette and Tobacco Products Retailer's License.
• Retailer B is required to register with us for a California Electronic Cigarette Excise Tax (CECET) permit (account). For more information, see the Tax Guide for California Electronic Cigarette Excise Tax.

Example 3: Retailer C purchases vape liquids that contain nicotine from an unlicensed distributor located outside California.

• Retailer C is required to register with us for a Tobacco Products Distributor's License and a Cigarette and Tobacco Products Distributor's License.
• Retailer C is required to register with us for a Cigarette and Tobacco Products Retailer's License because Retailer C makes sales to consumers.
• Retailer C is required to register with us for a California Electronic Cigarette Excise Tax (CECET) permit (account). For more information, see the Tax Guide for California Electronic Cigarette Excise Tax.

Wholesalers

Example 4: Wholesaler A purchases untaxed vape liquids that contain nicotine from an unlicensed distributor located outside of California.

• Wholesaler A is required to register with us for a Tobacco Products Distributor's License and a Cigarette and Tobacco Products Distributor's License.
• Wholesaler A must close its existing Wholesaler's license.
• In addition to these licenses, if Wholesaler A sells vape liquids that contain nicotine directly to consumers, Wholesaler A is also required to register with us for a Cigarette and Tobacco Products Retailer's License.

Example 5: Wholesaler B purchases tax-paid nicotine products for resale.

• Wholesaler B is required to hold a Tobacco Products Wholesaler's License and a Cigarette and Tobacco Products Wholesaler's License in order to purchase these products for resale.
• In addition to the license, if Wholesaler B sells these products directly to consumers, Wholesaler B is required to register with us for a Cigarette and Tobacco Products Retailer's License.

Distributors

Example 6: Distributor A solely sells eLiquid or eJuice products that do not contain nicotine or tobacco.

• Distributor A is not required to register with us for a tobacco products license since the eLiquid or eJuice products do not contain nicotine or tobacco.
• Distributor A is required to register with us for a Tobacco Products Distributor's License and Cigarette and Tobacco Products Distributor's License if Distributor A sells untaxed eLiquid or eJuice products that do contain nicotine or tobacco.
• Distributor A is also required to register with us for a Cigarette and Tobacco Products Retailer's License if Distributor A also sells these products, regardless if the products contain nicotine or not, directly to consumers.

Manufacturers

Example 7: Company A manufactures nicotine vape liquids in California and sells them to stores located in California and online directly to customers located in California.

• Company A is required to register with us for a Tobacco Products Distributor's License, Cigarette and Tobacco Products Distributor's License, Tobacco Products Manufacturer's/Importer's License, and a Cigarette and Tobacco Products Manufacturer/Importer's License.
• Company A is required to obtain a Cigarette and Tobacco Products Retailer's License for selling vape liquids directly to consumers from a California retail location.

Example 8: Company B is engaged in business in California (as defined in Revenue and Taxation Code section 30108(c)), manufactures nicotine vape liquids outside of California, and sells them to a store located in California.

• Company B can only sell to licensed distributors in California.
  • If Company B obtains a Cigarette and Tobacco Products Distributor License and Tobacco Products Distributor's License with us, Company B could then sell to California wholesalers, retailers, and consumers.
• Company B is required to hold a Tobacco Products Manufacturer's/Importer's License, Cigarette and Tobacco Products Manufacturer's/Importer's License, and PACT Act account with us to engage in the sale of nicotine vape liquids (tobacco products) in California.
• A California licensed distributor may not purchase tobacco products from an unlicensed manufacturer who is required to be licensed.
• The distributor located in California who purchases the nicotine vape liquids from Company B is required to report and pay the tobacco products tax due to us upon distribution in California and hold a Tobacco Products Distributor's License.
• California licensed wholesalers may not purchase tobacco products directly from California licensed manufacturers. (Business and Professions Code section 22980.1).

Example 9: Company C is not engaged in business in California (as defined in Revenue and Taxation Code section 30108(c)), manufactures nicotine vape liquids outside of California, and sells them directly to customers located in California.

• Company C is not required to hold a manufacturer's license from us.
• Instead, the businesses who purchase from Company C owe the tobacco products tax upon sale or distribution in California and are required to register with us for a tobacco products distributor's license. This would be considered a distribution according to Revenue and Taxation Code section 30008, which includes the sale, use or consumption of untaxed cigarettes or tobacco products in California.
• The businesses would owe the tobacco products tax based on the wholesale cost, which in this situation would be the amount the business paid to Company C, not including any discounts or trade allowances.
• If the California customer is a consumer, Company C is required to hold a Tobacco Products Distributor's License, Cigarette and Tobacco Products Distributor's License (Revenue and Taxation Code section 30101.7), and PACT Act account with us.

Vapes and Electronic Cigarettes — Examples of Who Owes the Tobacco Products Tax

Example 1: Business A purchases untaxed eLiquids containing nicotine from a manufacturer (either in-state or out-of-state).

• Business A is considered a tobacco products distributor and owes the tobacco products tax to us upon distribution in California.
• Sales invoices from licensed distributors must include a statement that indicates the California tobacco products taxes have been paid on the tobacco products sold.

Example 2: Business B purchases untaxed eLiquids containing nicotine from an out-of-state vendor who is not licensed by us as a tobacco products distributor and sells to stores in California.

• Business B is considered a tobacco products distributor and owes the tobacco products tax to us upon distribution in California.
• Only licensed distributors may be in possession of untaxed tobacco products.
• Licensed distributors must include a statement on their sales invoices that indicates the California tobacco products taxes have been paid on the tobacco products sold.

Example 3: Business C, a licensed tobacco products distributor, is located in California and sells eLiquids containing nicotine online to stores outside of California.

• Sales of tobacco products delivered to customers at an out-of-state location are exempt from the California tobacco products tax.

Example 4: Business D manufactures eLiquids containing nicotine in California and sells them directly and online across the U.S., including to California distributors, wholesalers, retailers, and consumers.

• Business D is considered a tobacco products manufacturer, distributor, and retailer.
• Business D, as a tobacco products manufacturer, can make tax exempt sales to licensed distributors in California.
• Business D, as a tobacco products distributor, owes the tobacco products tax to us upon distribution to California licensed wholesalers, retailers, and consumers in California.
• Since Business D sells directly to consumers, Business D is also considered a tobacco products retailer.
• Because Business D sells to consumers and is considered a retailer, Business D is required to register with us for a California Electronic Cigarette Excise Tax (CECET) permit (account). For more information, see the Tax Guide for California Electronic Cigarette Excise Tax.

Example 5: Business E is a licensed distributor located in California and sells tobacco products that were purchased ex-tax from a manufacturer to Business F, another licensed distributor located in California.

• Business E owes the tobacco products tax to us upon this distribution.

Example 6: Business G is an original importer that holds a tobacco products importer's license and sells untaxed tobacco products to Business H, a licensed distributor.

• An importer is any purchaser who purchases for resale in the United States tobacco products manufactured outside the United States for the purpose of making a first sale or distribution within the United States (Revenue and Taxation Code section 30019).
• Business G's sale to Business H is exempt (Revenue and Taxation Code section 30105).
• Business H (the licensed distributor) owes the tobacco products tax to us upon distribution in California.

Example 7: Business J, who is engaged in business in California, manufactures nicotine vape liquids outside of California and sells them to Business K located in California for resale.

• Business J is required to be licensed as a manufacturer because they are engaged in business in California.
• Business J is required to hold a PACT Act account with us because they make interstate sales to California customers.
• Business K may not purchase nicotine products from an unlicensed manufacturer who is required to have a license.
• Business K is considered a distributor, is required to hold a tobacco products distributor's license, and owes the tobacco products excise tax to us upon distribution in California.

Claim for Refund

You may file a claim for refund using our online services. If you believe you have paid more taxes directly to us than you owe, you may file a claim for refund.

To submit a claim for refund, simply login using your username and password and click on the account for which you want to request a refund. Click on the More link under the I Want To section. Then, select the Submit a Claim for Refund link and follow the prompts.

You may also file a claim for refund using the form CDTFA-101, Claim for Refund or Credit, or file an amended return stating the specific reason(s) for the overpayment. Additional details about filing a claim for refund can be found at our Special Taxes and Fees Refund page.

For additional information regarding claiming a refund for cigarette tax stamps, read Publication 63, Cigarette Distributor Licensing and Tax Stamp Guide.

Time Limit for Filing a Claim for Refund

Be sure to file your claim for refund by the applicable deadline. If you do not file on time, the CDTFA cannot consider your claim, even if you overpaid the tax. You must file a claim for refund by whichever of the following dates occur later:

• Three years after the due date of the return on which you overpaid the tax
• Six months after the date you overpaid the tax
• Six months after the date a determination (billing) became final
• Three years after the date the CDTFA collected an involuntary payment, such as from a levy or lien

Exported Tax-Paid Tobacco Products

Retailer or Wholesaler

If you purchased tax-paid tobacco products from an out-of-state California licensed distributor and you subsequently exported or shipped those tobacco products to a buyer outside of California, you may file a claim for refund directly with the CDTFA for the excise taxes paid on those tobacco products. Claims for the excise tax paid on these purchases may only be made if the tax is separately stated on the wholesaler or retailer's purchase invoice from the out-of-state California licensed distributor.

Distributor

A claim for refund or credit based upon the exportation of tax-paid tobacco products from this state to a point outside this state must be filed within three months after the close of the calendar month in which the tobacco products were exported. (Cigarette and Tobacco Products Tax Regulation 4063.5) A distributor may only receive a refund or credit for the exportation of tax-paid tobacco products for which they remitted the tax directly to the CDTFA. A refund or credit does not apply to the exportation of tax-paid tobacco products that a distributor purchased tax-paid.

Common Carriers

California Cigarette and Tobacco Products Tax Regulation 4041, Common Carrier Delivery Reports, requires that every common carrier making deliveries of cigarettes, originating outside California to a consignee located in California, must file a report to us, on or before the 25th day of the calendar month, following the calendar month in which the delivery of the cigarettes or tobacco products was made.

For example, a report for the April 2022 reporting period would be due on or before May 25, 2022. A report must be filed each month even if no deliveries were made. The delivery report is informational only; no tax or fee is due. Reports are filed online through our online services. Please refer to the top of this page for information regarding filing online. The report must include the following information concerning the shipment:

• The name of the shipper and the point of origin;
• The name of the consignee and the address to which the products were delivered;
• The date and number of the waybill covering the shipment;
• The number of cases, bales or other containers of cigarettes delivered, and the quantity of cigarettes contained therein, and the quantity of tobacco products delivered, as shown by the shipping documents; and
• In the case of rail shipments, the car initials and number; and
• In the case of water shipments, the name of the vessel and the number of the steamship bill of lading.

Proposition 56

2017 Floor Stock Tax and Cigarette Stamp Adjustment Tax FAQs

What was the floor stock tax and cigarette stamp adjustment tax? Who owed it?

What was the floor stock tax and cigarette stamp adjustment tax based on?

Were electronic cigarettes (eCigarettes) and vape liquids containing nicotine subject to the cigarette floor stock tax?

Is the floor stock tax return and/or cigarette stamp adjustment tax return available on the CDTFA website?

Do I need to keep records of my inventory counts when I determined the floor stock tax and/or cigarette stamp adjustment tax?

When were floor stock tax returns/cigarette stamp adjustment tax returns and payment of the additional tax due?

How do I pay the floor stock tax and cigarette stamp adjustment tax?

How did Proposition 56 affect the taxation of little cigars?

What do I do with my existing inventory after I paid the floor stock tax and stamp adjustment tax?

I'm a distributor and had unaffixed tax stamps bearing the “10” designation for stamping little cigars. Since little cigars are taxed as tobacco products upon distribution as of April 1, 2017, was I able to get a refund for these stamps?

I'm a retailer with over 100 separate retail locations. Could I have filed a printed spreadsheet containing the cigarette floor stock tax information (including account numbers) for all my locations or did I need to complete and file an individual floor stock tax return form for each of my locations?

I am a Native American retailer with a retail business located on an Indian reservation that sells cigarettes at retail. Was I required to file a floor stock tax return and pay the tax on my inventory of cigarettes?

Since the cigarette tax rate increase took effect on April 1, 2017, was a new cigarette tax stamp issued?

Was a new $2.00 tax stamp for the additional cigarette tax required to be applied in conjunction with the old cigarette tax stamp?

Retailers

California Electronic Cigarette Excise Tax (CECET)

Beginning July 1, 2022, retailers (in-state or out-of-state) of eCigarettes are required to collect from the purchaser (California consumer) at the time of sale, the California Electronic Cigarette Excise Tax (CECET) at the rate of 12.5 percent (12.50%) of the retail selling price of eCigarettes containing or sold with nicotine. The collection of the CECET is in addition to the sales and use tax.

A retailer of eCigarettes containing or sold with nicotine must:

• Be registered with us for a CECET permit (account),
• Include the CECET amount in any price marketing on any sign or display,
• Collect the CECET from the purchaser at the rate of 12.5 percent (12.50%) of the retail selling price of eCigarettes containing or sold with nicotine at the time of sale,
• Provide the purchaser with a receipt or other document that separately states the CECET and the amount they paid on each eCigarette retail sale,
• File a CECET return electronically, and
• Pay the tax to us.

For more information, see our Tax Guide for California Electronic Cigarette Excise Tax.

Retail Sales of Menthol Cigarettes, Most Flavored Tobacco Products, and Tobacco Product Flavor Enhancers are Prohibited

Beginning December 21, 2022, retailers, including their employees or agents, are prohibited from selling, offering for sale, or possessing with the intent to sell menthol cigarettes, most flavored tobacco products, and tobacco product flavor enhancers (Health and Safety Code section 104559.5).

The law does not apply to flavored premium cigars with a wholesale price (retailer's purchase price) of $12.00 or more and/or flavored loose-leaf pipe tobacco. Flavored shisha/hookah may be sold in licensed retail stores that only admit people 21 or older and operate in accordance with all state and/or local laws.

For more information, visit the California Department of Public Health's website for answers to frequently asked questions, a fact sheet, and additional resources; and read our Special Notice — New Law Prohibits Retail Sales of Menthol Cigarettes and Most Flavored Tobacco Products.

For questions, contact the California Department of Public Health, California Tobacco Control Program, by email at CTCPInbox@cdph.ca.gov or by telephone 1.916.449.5500.

Notes

1. Added by Senate Bill (SB) 793 (Stats. 2020, ch. 34, Sec. 1). Approved at the November 8, 2022, election in referendum Proposition 31.

Cigarette-Making Machines

If a retailer makes available a commercial cigarette-making machine for use by customers, federal law requires the retailer to obtain a permit as a “manufacturer of tobacco products” from the Alcohol and Tobacco Tax and Trade Bureau (TTB). Under the Cigarette and Tobacco Products Licensing Act of 2003, the retailer does not manufacture cigarettes if the retailer does not own the tobacco when it is manufactured into cigarettes. In this scenario, the retailer is not required to register with us as a cigarette manufacturer.

It is against federal law to operate as a manufacturer of tobacco products without a TTB permit, and doing so without proper permits risks civil and/or criminal liability. The TTB has instructed that retailers operating without a permit “must immediately cease operations until a TTB permit is obtained.” The TTB's enforcement efforts have included investigations of retail locations where the machines are made available to members of a “social club” or “non-profit.” The TTB has indicated that the non-profit status of the “person” making the machine available is not relevant in evaluating “commercial purposes” under Internal Revenue Code section 5702 and has found members of a “social club” or “non-profit” to be in violation of the law and has assessed taxes.

Please note: These requirements do not apply to cannabis businesses that only use the making or rolling machine to roll cannabis or cannabis products. Furthermore, cigarette and tobacco products may not be sold at the same location that is licensed as a cannabis business.

Minimum Age of Sale

The minimum age to purchase cigarettes and tobacco products in California is 21, except for active duty military personnel in the U.S. Armed Forces.

See the California Department of Public Health's Tobacco 21 website for more information.

License Requirement for Retailers of Electronic Nicotine Delivery Systems (ENDS)

Personal vaporizers, eCigarettes, eCigars, eHookahs, ePipes, and vaping devices are some of the terms used to describe electronic nicotine delivery systems (ENDS). Generally, these ENDS heat a liquid solution or “eLiquid,” which typically, but not always, contains nicotine and other ingredients, to create a vapor that the user inhales.

The ENDS that do not contain nicotine or are not sold in a kit that contains nicotine, are considered tobacco products for retail licensing purposes, but not for tax purposes. Thus, the sale of ENDS that do not contain nicotine or are not sold with nicotine are not subject to the California excise tax on tobacco products. However, a California Cigarette and Tobacco Products Retailer's License is required if you sell ENDS that do not contain nicotine or are not sold with nicotine to a consumer in California. A distributor or wholesaler does not need to be licensed under the California Cigarette and Tobacco Products Licensing Act of 2003 to sell ENDS that do not contain nicotine or are not sold with nicotine to a retailer.

Beginning July 1, 2022, the retail sale of ENDS that contain nicotine or are sold in a kit with nicotine are subject to the California electronic cigarette excise tax (CECET). Retailers of eCigarettes containing or sold with nicotine are required to collect from the purchaser the CECET at the rate of 12.5 percent of the retail selling price. Accordingly, electronic cigarette retailers are required to hold a California Cigarette and Tobacco Products Retailer's License and a CECET permit (account). For more information regarding the sales and reporting requirements for CECET, please see our Tax Guide for California Electronic Cigarette Excise Tax.

Please note: The California Cigarette and Tobacco Products Licensing Act does not apply to cannabis or other cannabis products, such as cannabis vape pens or accessories. In addition, cigarette and tobacco products may not be sold at the same location that is licensed as a cannabis business.

A Tobacco Products Retailer May Also Need to Register as a Tobacco Products Manufacturer

A tobacco product manufacturer (Regulation 4077, Tobacco Product Manufacturer) is:

• Any person, including any repacker or relabeler, who manufactures, fabricates, assembles, mixes, blends, combines, processes, or labels a finished tobacco product.
• An owner of a brand or formula for a tobacco product who contracts with another person to complete the fabrication and assembly of the product to the owner's standard.
• A retailer who mixes, blends, or combines a tobacco product that is not in a form suitable for human consumption, such as liquid nicotine, with other ingredients or components to make a tobacco product that is suitable for human consumption.

A tobacco products retailer is not a tobacco product manufacturer solely because:

• A retailer packages liquid nicotine with other items as one unit.
• A retailer packages finished tobacco products, such as cigars, together as one unit.
• A retailer allows its customers to mix, blend, or combine liquid nicotine and other components after a sale has been made.
• A retailer mixes, blends, or combines finished tobacco products, such as pipe tobacco.

A tobacco products retailer who is a tobacco product manufacturer must also register as a tobacco products distributor. A tobacco products retailer who is not licensed as a tobacco products manufacturer, importer, or distributor must purchase its tobacco products from a licensed tobacco products distributor or wholesaler.

For more information about manufacturers, see our Manufacturer & Importer section.

Distributors

Wholesale Cost of Tobacco Products — General

“Wholesale cost” means the cost of tobacco products to the distributor prior to any discounts or trade allowances (Revenue and Taxation Code section 30017). The wholesale cost is used to calculate the tax amount due for tobacco products distributions.

Regulation 4076, Wholesale Cost of Tobacco Products, provides more clarification on wholesale cost for your reference.

Wholesale Cost of Tobacco Products — Definitions

Regulation 4076(a), Wholesale Cost of Tobacco Products, defines:

Arm's-length transaction

An “arm's-length” transaction is a sale entered into in good faith and for valuable consideration that reflects the fair market value in the open market between two informed and willing parties, neither under any compulsion to participate in the transaction.

Discounts or trade allowances

“Discounts or trade allowances” are price reductions, or allowances of any kind, whether stated or unstated, and include, without limitation, any price reduction applied to a supplier's price list. The discounts may be for prompt payment, payment in cash, bulk purchases, related-party transactions, or 'preferred-customer' status.

Electronic cigarettes

“Electronic cigarettes” or “e-cigarettes” are devices or delivery systems sold in combination with nicotine that can be used to deliver the nicotine in aerosol or vapor form to a person, and the liquids ("e-liquid" and "e-juice”) such devices or delivery systems heat to create the aerosol or vapor. Electronic cigarettes include any component, part, or accessory of such a device or delivery system that is used during the operation of the device when sold in combination with any liquid or substance containing nicotine. Electronic cigarettes also include any liquids or substances that contain nicotine, regardless of whether they are sold in combination with any device, delivery system, or any component, part, or accessory of such a device or delivery system. If nicotine is not sold in combination with devices, delivery systems, components, parts, accessories, liquids, or substances, then those items are not electronic cigarettes.

Finished tobacco products; finished condition

“Finished tobacco products” and tobacco products in “finished condition” are tobacco products that will not be subject to any additional processing before distribution in the state.

Sold in combination with

Electronic cigarettes are “sold in combination with” nicotine when:

• Any of the items are sold with any nicotine liquid or substance in their original manufacturer packaging as one unit, or
• Sold for a single price before or when the nicotine liquid or substance is distributed.

Tobacco products

The definition of “tobacco products” (starting April 1, 2017) includes all products containing, made, or derived from tobacco or nicotine that are intended for human consumption, except cigarettes, any product that has been approved by the United States Food and Drug Administration for sale as a tobacco cessation product or for other therapeutic purposes where that product is marketed and sold solely for such approved use, and food products as defined in Revenue and Taxation Code section 6359. Tobacco products include, but are not limited to, cigars, little or small cigars, chewing tobacco, electronic cigarettes, pipe tobacco, and snuff.

Wholesale Cost of Finished Tobacco Products — Arm's-Length Transactions

If finished tobacco products are purchased by a distributor from a supplier in an arm's-length transaction, the wholesale cost of the tobacco product is (Regulation 4076(b)(1)):

• The amount paid for the tobacco product prior to discounts and trade allowances,
• Including any federal excise tax,
• Excluding any transportation charges for shipment originating within the United States.

Discounts and trade allowances must be added back when determining the wholesale cost.

Wholesale Cost of Tobacco Products — Non-Arm's-Length Transactions and Rebuttable Presumption

Presumption of Non-Arm's-Length Transactions

Sales, purchases, and transfers of tobacco products are rebuttably presumed to not be at arm's-length if they are between related parties such as (Regulation 4076(d)):

• Relatives (by blood or marriage, which relationships include, but are not limited to, spouses, parents, domestic partners, children and siblings);
• Partners or a partnership and its partners;
• A limited liability company or association and its members;
• Commonly controlled corporations;
• A corporation and its shareholders; or
• Persons, as defined in Revenue and Taxation Code section 30010, and entities under their control or between commonly controlled entities.

How to Rebut a Transaction Presumed Not to Be at Arm's-Length

If we determine that a sale, purchase, or transfer of tobacco products was between related parties, the distributor may rebut the presumption that the sale, purchase, or transfer was not at arm's-length by showing that the price, terms, and conditions of the transaction were substantially equivalent to those that would have been negotiated between unrelated parties.

Wholesale Cost of Non-Arm's Length Transactions

If tobacco products are purchased in a non-arm's length transaction, the correct wholesale cost to be reported by the distributor may be determined using any of the alternative methods of estimating or calculating wholesale cost as provided in Regulation 4076(c), which is also provided below under the heading “Wholesale Cost of Tobacco Products – Alternative Methods of Estimating or Calculating Wholesale Cost in Certain Situations”.

Wholesale Cost of Tobacco Products — If a Manufacturer or Importer is also the Distributor

If a manufacturer or an importer is also the distributor, the wholesale cost of tobacco includes (Regulation 4076(b)(2)):

• All manufacturing costs. Manufacturing costs:
  • Include overhead expenses directly or indirectly attributable to the production of finished tobacco products, which can include, but are not limited to:
    • Production and administrative salaries,
    • Depreciation,
    • Repairs and maintenance,
    • Rent and utilities for the production facilities, and
    • Equipment.
  • Must be allocated to each product unit by a reasonable and consistent pro-rata accounting method.
  • Do not include overhead expenses that are not directly or indirectly attributable to the production of finished tobacco products. These costs can include, but are not limited to, salaries and other expenses for business activities involving selling, distribution, marketing, finance, information technology, human resources, and legal activities.
• The cost of raw materials (including waste materials not incorporated into finished tobacco products) prior to any discounts or trade allowances,
• The cost of labor,
• Federal excise taxes paid,
• U.S. Customs taxes paid,
• Freight or transportation charges for shipment of materials and unfinished products from a supplier to a manufacturer concurrently licensed as a distributor, but excludes domestic freight or transportation charges for shipment of finished tobacco products.

If a manufacturer or importer of tobacco products is also a distributor, the correct wholesale cost to be reported by the distributor may be determined using any of the alternative methods of estimating or calculating wholesale cost as provided in Regulation 4076(c), which is also provided below under the heading “Wholesale Cost of Tobacco Products - Alternative Methods of Estimating or Calculating Wholesale Cost in Certain Situations”.

Wholesale Cost of Tobacco Products — Alternative Methods of Estimating or Calculating Wholesale Cost in Certain Situations

The correct wholesale cost to be reported by the distributor may be determined by using any of the alternative methods of estimating or calculating the wholesale cost as described in Regulation 4076(c), if the following situations apply:

• If a manufacturer or importer of tobacco products is also a distributor. (Regulation 4076(b)(2))
• If tobacco products costs include express, implicit, or unstated discounts or trade allowances. (Regulation 4076(b)(3))
• If tobacco products are not purchased in an arm's length transaction. (Regulation 4076(b)(4))

The following resources or methods, as described in Regulation 4076(c), may be used:

• A publicly or commercially available price list that the distributor used to determine the prices of tobacco products sold to customers in arm's-length transactions during the time period at issue, less an estimate based on best available information of the distributor's or a similarly situated distributor's profit.
• If a publicly or commercially available price list is not available, industry data from the time period to be estimated or calculated that provides reasonable evidence of typical tobacco product costs during such time period, including, but not limited to:
  • Evidence reasonably indicative of the same or similar tobacco products typical costs for similarly situated distributors, with appropriate adjustments to such costs as indicated by all the facts and circumstances.
  • All the direct and indirect costs that the supplier paid or incurred with respect to acquisition, production, marketing, and sale of the tobacco products sold by the supplier to the distributor, with appropriate adjustments to such costs as indicated by all the facts and circumstances, plus a reasonable estimate of the supplier's profit.
  • The price of the same or similar tobacco products as reflected in a supplier's price list, with appropriate adjustments to such price as indicated by all the facts and circumstances.
  • The retail price of the same or similar tobacco products as reflected in a retailer's price list, with appropriate adjustments to such price as indicated by all the facts and circumstances, less reasonable estimates of the retailer's and distributor's profits.
  • Additional methods not mentioned above, with our approval.

Wholesale Cost of Tobacco Products — Examples of Estimating or Calculating

Regulation 4076(e), Wholesale Cost of Tobacco Products, provides examples of estimating or calculating the wholesale cost of tobacco products:

Example 1: Distributor B produces handmade cigars.

• Since Distributor B makes the cigars, Distributor B is a manufacturer in addition to a distributor.
• Distributor B would compute the wholesale cost of their tobacco products by including their manufacturing costs. See description of all costs to include under the heading “Wholesale Cost of Tobacco Products — If a Manufacturer or Importer is also the Distributor” or Regulation 4076(b)(2).

Example 2: Distributor C purchases tobacco products from a subsidiary corporation in which it owns or controls more than 50 percent of the voting stock.

• Due to this corporate relationship between seller and buyer, we presume that the sale and purchase were not at arm's-length, and the presumption is not rebutted by Distributor C.
• In the absence of an arm's-length transaction, the methods discussed under the heading “Wholesale Cost of Tobacco Products — Alternative Methods of Estimating or Calculating Wholesale Cost in Certain Situations” or in Regulation 4076(c) may be used to determine the correct wholesale cost.

Example 3: Distributor D acquires tobacco products free of charge and reports no wholesale cost for the products on its Tobacco Products Distributor Tax Return.

• However, Distributor D acquired such tobacco products at a 100 percent discount or trade allowance.
• In the absence of an arm's-length transaction, the methods discussed under the heading “Wholesale Cost of Tobacco Products — Alternative Methods of Estimating or Calculating Wholesale Cost in Certain Situations” or in Regulation 4076(c) may be used to determine the correct wholesale cost.

Example 4: Distributor E, with a Tobacco Products Importer's License, acquires tobacco products or finished tobacco products from a supplier outside the United States.

• Distributor E's tobacco products costs include, in addition to all other production or acquisition costs, the costs of all U.S. Customs fees and federal excise taxes paid or incurred by Distributor E with respect to such tobacco products.

Example 5: Distributor F receives three tobacco products packaged as one unit, as a “three for the price of two” promotional package, labeled with a single UPC barcode.

• As the products are packaged together as one inseparable unit, tax is based on the total package price.

Example 6: Distributor G receives two units, to sell as a “buy one, get one free” promotion. Each unit is separately packaged and each unit is labeled with a UPC barcode.

• Because one unit is being provided for free, tax would apply to the wholesale cost of each separate unit as calculated by a method discussed under the heading “Wholesale Cost of Tobacco Products — Alternative Methods of Estimating or Calculating Wholesale Cost in Certain Situations” or in Regulation 4076(c).

Example 7: Distributor H receives a three percent discount for paying their supplier within 10 days of receipt of their items.

• To calculate the wholesale cost, Distributor H must add the three percent discount to the price paid for the products.

Wholesale Cost of Tobacco Products — Examples of Items that Are and Are Not Tobacco Products as of April 1, 2017, and Additional Examples of Estimating or Calculating the Wholesale Cost of Tobacco Products

Regulation 4076(f) provides examples of items that are and are not tobacco products as of April 1, 2017, and additional examples of estimating or calculating the wholesale cost of tobacco products:

Example 1: Distributor K produces finished nicotine products intended for human consumption.

• Since K makes tobacco products, K is considered a manufacturer in addition to a distributor.
• Therefore, to compute the wholesale cost of K's tobacco products, K would include the costs described under the heading “Wholesale Cost of Tobacco Products – If a Manufacturer or Importer is also the Distributor” or in Regulation 4076(b)(2).

Example 2: Distributor L purchased two types of vaping kits. Both types of kits are sold to Distributor L as a single unit in their original manufacturer packaging and contain a personal vaping device, tank, atomizer coil, USB charger, AC adapter, and a bottle of finished eLiquid. Kit 1 has 1.80 percent nicotine content in its eLiquid while Kit 2 has no nicotine in its eLiquid.

• Kit 1 is an electronic cigarette (eCigarette) because Kit 1 contains a personal vaping device and related components, parts, or accessories that are sold in combination with liquid containing nicotine.
• When Kit 1 is distributed, Distributor L would need to report the tobacco products tax based on the wholesale cost of Kit 1 as a unit.
• Kit 2 is not an eCigarette because nicotine is not sold in combination with the items in Kit 2 and the tobacco products tax would not apply to Kit 2 because it is not a tobacco product.

Example 3: Distributor M purchased 100 packages of vaping Kit number 3, which the manufacturer packaging states contains the following: a personal vaping device, tank, atomizer coil, USB charger, and AC adapter. Distributor M also purchased 100 packaged bottles of finished, eLiquid containing 3.20 percent nicotine. Distributor M intends to sell both packages to wholesalers and retailers and will separately charge wholesalers and retailers for packages containing Kit 3 and packages containing a bottle of the finished eLiquid containing nicotine as part of each sale of both items in the same transaction.

• Distributor M will need to report the tobacco products tax on the wholesale cost of the packages containing bottles of finished eLiquid containing nicotine because eLiquid containing nicotine is an eCigarette and therefore, a tobacco product, but not on the packages of Kit 3, which are not eCigarette or tobacco products, because the items in Kit 3 are not sold in combination with a liquid or substance containing nicotine.

Example 4: Distributor N sells closed-system vaping devices to wholesalers and retailers. The devices are manufactured so that they contain finished eJuice containing nicotine, they are immediately ready to use when purchased, and new devices cannot be sold without nicotine.

• The closed-system vaping devices are eCigarettes because they are sold in combination with a liquid or substance containing nicotine.
• Distributor N will need to report the tobacco products tax on the entire wholesale cost of each closed-system eCigarette.

Example 5: Retailer P purchases eJuice containing nicotine tax-paid from a licensed tobacco products distributor. Retailer P, as a promotion, will package and sell the tax-paid eJuice containing nicotine with a battery, power adapter and carrying case all for a single price.

• The retailer's packaged product is not an eCigarette for purposes of the tobacco products tax and the retailer's wholesale cost of the packaged product is not subject to the tobacco products tax because the distribution of the eJuice containing nicotine occurred prior to Retailer P's promotional sale.

Example 6: Distributor Q advertises that if customers purchase ten (10) disposable eCigarette cartridges prefilled with eJuice that has a nicotine content of 1.8 percent, they will receive their choice of two accessories for free that were not packaged with the cartridges in the cartridges' original manufacturer packaging as one unit. The billing invoices show the price charged for the cartridges and a separate charge of $0 for the accessories.

• The tobacco products tax would apply to the wholesale cost of the cartridges only since the accessories are not packaged with the cartridges by the manufacturer as one unit and the accessories are not sold with the cartridges for a single price.

Example 7: Distributor R, who also manufactures finished tobacco products, rents a facility where it manufactures and stores finished tobacco products. The facility also houses the offices for Distributor R's entire operation, including the sales and general administration offices. Distributor R pays the sum of $10,000.00 per month in rent for the facility. Distributor R utilizes five percent of the total volume of space for manufacturing finished tobacco products.

• Because a portion of the rented facility is used for manufacturing purposes, Distributor R must allocate a proportionate share of its rent expense to its calculation of its manufacturing costs.
• In this example, Distributor R must allocate five percent of the monthly rent ($10,000 x 5% = $500) to the wholesale cost of the finished tobacco products Distributor R manufactures at the facility.

Example 8: Distributor S purchases untaxed 60 ml. containers of finished eLiquid containing nicotine from an out-of-state company. Distributor S places each 60 ml. container of finished eLiquid containing nicotine into a single package along with a vaping kit assembled by Distributor S which contains a personal vaping device, tank, atomizer coil, USB charger and an AC adapter. Distributor S will distribute the eLiquid containing nicotine by selling these combined packages to other distributors, wholesalers, retailers, and consumers in California for a single price.

• When Distributor S sells each combined package containing untaxed eLiquid containing nicotine for a single price, the entire package will be an electronic cigarette, and tax will apply to the wholesale cost of the entire package.

Tobacco Products Sales by an Out-of-State Licensed Distributor to an In-State Licensed Distributor is Not a Distribution

The sale of tobacco products by an out-of-state California-licensed tobacco products distributor to an in-state California-licensed tobacco products distributor is not considered a distribution (R&TC section 30008) of tobacco products in California by the out-of-state seller. Instead, the licensed distributor in California who purchases the tobacco products from out-of-state and who makes the distribution of tobacco products in California owes the applicable excise tax.

A distribution includes the sale, use, or consumption of untaxed cigarettes or untaxed tobacco products in California and the placing of untaxed cigarettes or untaxed tobacco products into a vending machine or retail stock in California (R&TC section 30008).

License Requirements

An out-of-state distributor who is engaged in business in California must have a California distributor license for licensing and tax reporting purposes (R&TC section 30108). An out-of-state distributor who is not engaged in business in California may apply for a distributor license (R&TC section 30140.1) for licensing and tax reporting purposes. Out-of-state California-licensed distributors have the same responsibilities and requirements as in-state California-licensed distributors.

“Engaged in business” includes, but is not limited to:

• Maintaining, occupying, or using any type of business location. This includes use that is temporary, direct or indirect, or through any type of subsidiary or agent.
• Having a representative in California who sells, delivers, or takes orders of tobacco products.

Distributor licenses are required for each business location that distributes tobacco products in California (R&TC section 30140). A warehouse/storage location is not considered a location that distributes tobacco products unless direct tobacco products distributions are made from that warehouse/storage location.

Calculation of Tax

The excise tax is due on the in-state California licensed tobacco products distributor's wholesale cost of the tobacco products. The in-state distributor's wholesale cost is usually the list price on their purchase invoice from their supplier prior to any discounts or trade allowances. The tax rate that applies is the rate in effect at the time the in-state distributor sells the tobacco products. For additional information on the wholesale cost, please read Regulation 4076, Wholesale Cost of Tobacco Products. In-state distributors responsible for paying the excise tax on taxable distributions (sales) must: indicate the excise tax on the sales invoice issued to customers; calculate the excise tax due based on their wholesale cost; report their distribution of the tobacco products, based on the date sold, on the tax return (Tobacco Products Distributor Tax Return) provided by the state; and pay the total amount due to the state.

For reference, view the Special Notice (L-506, September 2017), Tobacco Product Sales by Out-of-State Distributors to In-State Distributors.

“Buy One, Get One Free”

Cigarettes

The measure of tax is different for a “Buy 1 Get 1 Free” unit of cigarettes. With cigarettes, the two packages cannot be viewed as one unit for tax purposes because the cigarette tax is based on each cigarette (stick) distributed, not wholesale cost, and both packages require a tax stamp. In short, cigarettes are taxed per each cigarette (stick) distributed and tobacco products are taxed based on the wholesale cost to the distributor.

Tobacco Products

When multiple cans of chewing tobacco, for example, are sold by a manufacturer to a licensed distributor in a one-pack unit commonly referred to as “Buy 1, Get 1 Free,” or “Three for the Price of Two,” what is the measure of tax? See examples below:

Example 1: Distributor A receives three tobacco products packaged as one unit, as a “three for the price of two” promotional package, labeled with a single UPC barcode. As the products are packaged together as one inseparable unit, tax would apply on the total package wholesale price.

Example 2: Distributor B receives 2 units, to sell as a“buy one, get one free” promotion. Each unit is separately packaged and each unit is labeled with a UPC barcode. Because one unit is being provided for free, tax would apply to the wholesale cost of each separate unit.

Nontaxable Transactions

The following sales and distributions of cigarettes and tobacco products are generally not subject to the tax although these transactions may be subject to reporting requirements. This list is not intended to be all-inclusive.

• Sales of cigarettes or tobacco products by the original importer to a licensed distributor if the cigarettes or tobacco products are manufactured outside the United States (Revenue and Taxation Code (R&TC) section 30105);
• Sale or gift of federally tax-free cigarettes or tobacco products when the cigarettes or tobacco products are delivered directly from the manufacturer under Internal Revenue bond to a veteran's home of the State of California or a hospital or domiciliary facility of the United States Veterans' Administration for gratuitous issue to veterans receiving hospitalization or domiciliary care. The tax shall not apply to the use or consumption of such cigarettes or tobacco products by the institution or by the veteran patients or domiciliaries (R&TC section 30105.5);
• Sales of cigarettes or tobacco products by the manufacturer to a licensed distributor (R&TC section 30103);
• Sales by a distributor to a common carrier engaged in interstate or foreign passenger service. (R&TC section 30104); Note: To properly support your claim for the interstate commerce exemption, you must:
  • Maintain adequate documentation. Evidence of delivery of cigarettes or tobacco products to a destination outside of California must be retained by the distributor. In the case of cigarettes or tobacco products for foreign export, copies of United States Customs shippers' export declarations filed with the Collector of Customs or other documentary evidence of export must be obtained and retained.
  • Claim the correct wholesale cost for tobacco products. All distributions of untaxed tobacco products must be included in the wholesale cost of distributions. With proper documentation, sales of tobacco products which are shipped to a buyer outside of California may be claimed as an exempt sale. The amount claimed is the wholesale cost to the distributor, not the distributor's selling price.
• Sales to United States military exchanges, commissaries, ships' stores, or the U.S. Department of Veterans Affairs (R&TC section 30102);
• Distributions of federally untaxed cigarettes or tobacco products that are under Internal Revenue bond or U.S. Customs control (R&TC section 30102.5);
• An individual shipment of not more than 400 cigarettes (typically 20 packs or 2 cartons) personally transported into California (R&TC Section 30106);
• Sales and distributions of cigarettes and tobacco products that cannot be taxed by the state under the U.S. Constitution or federal law, or under the California Constitution or state law, such as shipments to purchasers in other states, territories, or foreign countries when the cigarette and tobacco products are not to be returned to California before use.

Native Americans

Sales Involving Native Americans: Basic Application of Tax

Native American retailers

A Native American retailer in California who buys untaxed tobacco products or cigarettes without a California tax stamp and sells them to non-Native Americans on a Native American reservation is required to collect the cigarette and tobacco products excise taxes from those purchasers and pay the excise tax to us.

If the Native American retailer does not collect and pay the excise taxes due, the non-Native American purchaser is ultimately liable for the excise taxes. Non-Native Americans who purchase cigarettes without California tax stamps or untaxed tobacco products from a Native American retailer owe the cigarette and tobacco products excise and use taxes. The non-Native American purchaser must file a return with us to report purchases and pay applicable California cigarette and tobacco products excise and use taxes. For more information on how non-Native American purchasers report and pay excise and use taxes, see the PACT Act & Consumer section.

Distributors

There are no special exemptions from the state's cigarette and tobacco products excise taxes for sales of cigarettes and tobacco products to Native Americans. A non-Native American cigarette or tobacco products distributor who sells cigarettes or tobacco products to Native American must pay cigarette and tobacco products excise taxes and apply California cigarette tax stamps to the cigarette packages.

License Requirement and Fee Relating to Native Americans

License Requirement

To comply with California law, Native American Tribes are generally required to obtain and maintain the appropriate cigarette and tobacco products license(s) in order to make sales in California of cigarettes and tobacco products to businesses or consumers.

If a Native American Tribe operates on its own tribal land and exclusively makes sales to members of its own tribe, that Native American Tribe is not required to hold a cigarette and tobacco products license.

If a Native American Tribe makes sales of cigarettes and tobacco products to non-Native Americans or tribe members of a different Native American tribe, however, California law requires the Native American Tribe to obtain a cigarette and tobacco products license since those sales must be reported and the tax must be collected and remitted to CDTFA.

License Fee

If a Native American Tribe is required to hold a cigarette and tobacco products license in order to sell cigarettes and tobacco products to non-Native Americans or tribe members of a different Native American tribe in California, the license fee for a cigarette and tobacco products license does not apply to that Native American Tribe.

Disclaimer

This page summarizes the law and applicable regulations in effect when it was written. However, changes in the law or in regulations may have occurred since that time. If there is a conflict between text on this webpage and the law, the decision will be based on the law and not on this webpage.