97-047
Response September 3, 1997
July 31, 1997
Re: Request
For Ruling
NAME
ADDRESS
CITY STATE ZIP
Dear Ms Rees:
Please accept this letter as a request for a private
ruling concerning the Utah Department of Revenue's ("the Department")
determination of "established price" under Code
Section 59-14-302 for purposes of calculating the
tobacco tax on products sold in a pre-packaged promotional unit. We understand
that Utah's Code Section 59-14-302 provides, in part, for a levy on the
distribution of tobacco products, based on the "manufacturer's sales
price" of the products." The law defines "manufacturer's sales
price" as "the amount charged by the manufacturer less all
discounts.”
Facts:
COMPANY A ("NAME" or "the Company") is engaged in
the promotion and sale of smokeless tobacco products to distributors
nationwide. COMPANY A purchases its products from United States Tobacco
Manufacturing Company Inc. ("COMPANY A"). In addition to other
smokeless tobacco products, COMPANY A currently sells Copenhagen, Copenhagen
Long Cut and Skoal Long Cut.
In an effort to maintain their competitiveness in
the present marketplace, COMPANY A will begin a nationwide promotional campaign
to offer larger units of the tobacco products for sale to customers. COMPANY A
anticipates that these programs will be offered at regular intervals for an
indefinite period of time. For instance, one product brand, Skoal Wintergreen,
will be offered to customers in a pre-packaged unit containing four (4) cans of
the smokeless tobacco product. The four-can pre-packaged unit will be offered
for sale to all customers at a price separate and distinct from the price
charged on an individual per can basis. It should be noted that the four can
pre-packaged unit will be offered for sale to all customers at only one price,
with only the Company's standard four (4) percent cash discount offered for
early payment. In addition, a customer is allowed a one dollar discount per
promotional package display unit. No volume discounts are offered to customers.
Each individual can of smokeless tobacco contained in the unit cannot be sold
separately and is specifically marked 'NOT FOR INDIVIDUAL SALE." The Company's
credit policy for damaged product with respect to this program applies only to
the pre-packaged unit and not to an individual can of smokeless tobacco
product. For financial accounting purposes, sale of the product is recorded at the sales price of the four can
pre-packaged unit and not at some higher price less a discount.
Request for Ruling
Based on the facts above, we respectfully request a
ruling concerning the State's definition of "established price" for
purposes of calculating the tobacco tax. We feel that the proper calculation of
the tobacco tax is on the sales price of the pre-packaged unit of smokeless
tobacco
products. Generally, the "established
price" for purposes of calculating the OTP tax is the amount charged by the
manufacturer to the wholesaler before any discounts are taken. The
"established price," however, depends upon the facts and
circumstances surrounding the sale of the particular product. The four can
pre-packaged unit will be offered for sale to customers at a price which is
separate and distinct from the price of product sold on a per can basis. In
addition and as noted above, each can of the smokeless tobacco contained in the
pre-packaged unit cannot be sold, or returned, on an individual basis.
Other jurisdictions, such as South Carolina, have
concluded that the "established price" of a product is the
"recognized and accepted sum of money asked for a product which a
manufacturer sells to a wholesaler." In
addition, to extrapolate a price based on a smaller unit would defy the intent
of the OTP tax statute and would allow the State to manipulate the tax base.
Also, the fact that the product consists of four cans (marked "NOT FOR
INDIVIDUAL SALE") packaged as a unit rather than one larger can should be irrelevant
in determining the proper tax base. While we understand that the cash discount
and one dollar discount per display unit may not be considered in determining
the price base, the list price presented to our
customers for the four can pre-packaged unit is the
appropriate tax base.
Since the Company anticipates introducing a
pre-packaged unit in the beginning of September, we would greatly appreciate
your expedience in this matter. If you need further information or have any
questions, please do not hesitate to contact me at #####.
Very truly yours,
NAME
September
3, 1997
NAME
ADDRESS
CITY STATE ZIP
Advisory Opinion - Calculation of price for purposes
of tobacco tax
Dear NAME,
We have
received your request for tax guidance pertaining to the price on which tobacco
tax is calculated. We offer the
following:
Although
you ask us to define the term “established price,” our tax is based on the
“manufacturer’s sales price.” As you
have noted, the manufacturer’s sales price is the amount charged by the
manufacturer on each unit, plus freight charges, minus discounts. The manufacturer’s sales price, and not
COMPANY A’s sales price, is the basis for this tax. Because COMPANY A purchases
directly from the manufacturer, COMPANY A knows the actual manufacturer’s sales
price and can calculate the tax on that basis. In the event that COMPANY A
makes sales into Utah and does not know the manufacturer’s sales price, an
alternative formula is offered in our tax return instructions.
Please
let us know if you need further clarification.
For
the Commission,
Joe
B. Pacheco,
Commissioner
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