Cigarette Stamp Tax








Petitioner, )

) Appeal No. 00-1137

v. )

) Account No. #####


UTAH STATE TAX COMMISSION, ) Tax Type: Cigarette Stamp Tax


Respondent. ) Judge: Davis




G. Blaine Davis, Administrative Law Judge



For Petitioner: PETITIONER REP

For Respondent: Ms. Julie Jones, from the Auditing Division



This matter came before the Commission for an Initial Hearing on November 13, 2000 pursuant to the provisions of Utah Code Ann. '59-1-502.2.

Petitioner was audited by Respondent to check for compliance with the cigarette tax and stamp laws of the State of Utah. Petitioner was cited for two alleged violations.

First, Respondent confiscated ##### packs of cigarettes which were not stamped with the Utah cigarette tax stamp, and Petitioner was assessed a penalty in the amount of $25 per pack in accordance with Utah Code Ann. '59-14-205.

Second, Petitioner was cited for having "grey market cigarettes" which were not intended to be sold, distributed or used in the United States. Petitioner had ##### packs of such cigarettes, and was assessed a penalty of $$$$$, or 500% of $$$$$ per pack in accordance with Utah Code Ann. '59-14-211.

With respect to the ##### packs that did not have Utah State stamps on them, Petitioner alleges he purchased those cigarettes at COMPANY A, and was not aware they did not bear a Utah stamp. He has contacted COMPANY A, and they told him to bring them back and they will exchange them for packs that bear the Utah stamp, but that is impossible because the cigarettes were confiscated by Respondent.

With respect to the "grey market" cigarettes that were not intended for sale in the United States, Petitioner presented a permit which was issued to an importer, and a copy of the invoice showing he purchased them from COMPANY B, and a copy of an invoice where COMPANY B purchased stamps to place on the cigarettes. The ##### packs of cigarettes did contain a Utah cigarette tax stamp, but they were marked as U.S. tax exempt for use outside the United States. The law which prohibited the sale of such cigarettes came into effect on July 1, 2000, and the cigarettes were confiscated on July 21, 2000, so they may have been in the United States and in process before the law became effective. The invoice showing the purchase by Petitioner is dated July 13, 2000, with the cigarettes having been shipped to Petitioner on that day. Petitioner represented he was not aware of any problems with those cigarettes.

Petitioner also represented that the confiscation of all of the cigarettes in question, plus the fines totalling over $$$$$ imposes a substantial hardship on him and may put him out of business. He also represented that he was not aware of any problems with any of the cigarettes.

Petitioner testified the retail sales price of the cigarettes is $$$$$ per pack, and not $$$$$ per pack as assumed by Respondent. Therefore, if the penalty is not waived, it is 25% too high.


The Tax Commission is granted the authority to waive, reduce, or compromise penalties and interest upon a showing of reasonable cause. Utah Code Ann. '59-1-401(10).

Utah Code Ann. '59-14-205, provides in relevant part as follows:

(3) Stamps shall be securely affixed to each individual package within 72 hours after any of the cigarettes are received by any wholesaler, distributer, or retailer within the state. All cigarettes shall be stamped before sale within the state. If products subject to this chapter are manufactured within the state they shall be stamped by the manufacturer when and as sold.

. . . .


(7) Any person failing to properly affix and cancel stamps to the cigarettes under rules promulgated by the commission, may be required by the commission to pay as part of the tax, a penalty of $25 for each offense, to be assessed and collected by the commission as provided in Section 59-14-405. Each article, package, or container found not having proper stamps affixed to it shall be deemed a separate offense. The presence of any package or container in a place of business conducting retail sales shall be prima facie evidence that it is intended for sale and subject to taxes under this chapter.

Utah Code Ann. '59-14-210, provides in relevant part as follows:

(1) Except as provided in Subsection (2), a person licensed under Section 59-14-202 may not barter, sell, exchange, or offer for sale cigarettes:

(a) in a package which:

(i) bears a statement, label, stamp, sticker, or other notice that the manufacturer did not intend the cigarettes to be sold, distributed, or used in the United States, including the following and similar notices:

(A) "For Export Only";

(B) "U.S. Tax-Exempt"; and

(C) "For Use Outside the U.S." or

. . . .


(c) the licensee knows or has reason to know were not manufactured for sale, distribution, or use in the United States;

. . . .


(2) Subsection (1) does not apply to cigarettes sold or intended to be sold as duty-free merchandise by a duty-free sales enterprise in accordance with the provisions of 19 U.S.C. 1555(b) and any implementing regulations unless the cigarettes are brought back into the customs territory for resale within the customs territory.


Utah Code Ann. '59-14-211, provides in relevant part as follows:

(1) A person, regardless of whether the person is a licensee under Section 59-14-202, is guilty of a class B misdemeanor for each instance in which the person knowingly or with reason to know:

(a) sells or distributes cigarettes described under Section 59-14-210;

(b) acquires, holds, owns, possesses, transports, imports, or causes to be imported cigarettes:

(i) described under Section 59-14-210; and

(ii) intended for distribution or sale in the state;

. . . .

(d) affixes a stamp used to pay the tax imposed under Section 59-14-204 to a package or container of cigarettes:

(i) described under Section 59-14-210; or

(ii) known by the person affixing the stamp to be altered as described under Subsection (1)(c).

(2) If a person knowingly or with reason to know commits an act described in Subsections (1)(a) through (1)(d), the commission may:

(a) suspend or revoke a license issued to the person under Section 59-14-202; and

(b) regardless of whether the person is licensed under Section 59-14-202, impose a civil penalty in an amount not to exceed the greater of:

(i) 500% of the retail value of the cigarettes; or

(ii) $5,000.

The Commission policy on first time waiver for cigarette penalties is as follows:

Does the Commission wish to apply the first time error waiver to the $25 per unit penalty of '59-14-205 that may be assessed for failing to affix or cancel stamps on cigarettes? It depends. The stamp requirement is well known and understood in the industry. As a result, a penalty will frequently be justified even if it is for a first time error. Nevertheless, the Commission believes there are circumstances that could lead to a different conclusion. Accordingly, the Commission will base its decision based on all the facts and/or arguments presented by all parties.


The Commission has not specifically considered whether the first time waiver policies should apply to the penalties imposed in Utah Code Ann. '59-14-211.


With respect to the ten packs of cigarettes that did not contain cigarette stamps, Utah Code Ann. '59-14-205 provides a $25 per pack penalty if the stamps are not "securely affixed to each individual package within 72 hours after any of the cigarettes are received by any . . . retailer within the state." There is no evidence in this proceeding to indicate the cigarettes had been in the possession of Petitioner for a period of at least 72 hours, because under the statute it is not a violation for the cigarettes to not have stamps until they have been in a party's possession for the 72 hour period to allow time for installing the stamps. However, in this case, Petitioner has not raised the 72 hours as a defense, and it is assumed they were in his possession for at least such a period. If they were in his possession for a lesser period, then Petitioner may raise that issue at any possible future formal hearing in this matter. Although Petitioner has raised the issue that he did not know there were no stamps on those cigarettes, all retailers have a responsibility to check and make sure stamps are on their inventory within 72 hours after receipt.

With respect to the cigarettes which did have a Utah stamp but bore a statement that the cigarettes were not intended to be sold within the United States, Utah Code Ann. '59-14-211 imposes a penalty only "if a person knowingly or with reason to know commits an act described in Subsections (1)(a) through (1)(d) . . . ." (Emphasis added). Petitioner testified that he did not know or have any reason to know that such cigarettes were a violation of any Utah law. Further, the law came into effect only three weeks before the cigarettes were confiscated, and only approximately one week after Petitioner purchased them from the distributor. Respondent testified that Petitioner would not have received a copy of the tax bulletin notifying cigarette sellers of the provisions of the new act, because he was not a licensed dealer at the time the tax bulletin was mailed informing cigarette retailers and others of the new law.

Notwithstanding these facts, Petitioner has a responsibility to inspect the products it holds for sale to the public, and ensure that all of such products may legally be sold to the public.


Based upon the foregoing, the Commission finds that sufficient cause has not been shown to justify a waiver of either the $$$$$ penalty for ##### packs of cigarettes which did not contain the Utah stamp, or to waive the penalty imposed for the cigarettes which contained a statement that the cigarettes were not to be sold, distributed, or used in the United States. However, the penalty is to be reduced and based upon a retail value of $$$$$ per pack for such cigarettes. It is so ordered.

This decision does not limit a party's right to a Formal Hearing. However, this Decision and Order will become the Final Decision and Order of the Commission unless any party to this case files a written request within thirty (30) days of the date of this decision to proceed to a Formal Hearing. Such a request shall be mailed to the address listed below and must include the Petitioner's name, address, and appeal number:

Utah State Tax Commission

Appeals Division

210 North 1950 West

Salt Lake City, Utah 84134

Failure to request a Formal Hearing will preclude any further appeal rights in this matter.

DATED this 4th day of June , 2002.







Pam Hendrickson R. Bruce Johnson

Commission Chair Commissioner





Palmer DePaulis Marc B. Johnson

Commissioner Commissioner