98-005
Response February 4, 1998
December
23 1997
Re: Request For Ruling
NAME
ADDRESS
CITY
STATE ZIP
Dear
Mr. Pacheco:
Please
accept this letter as a request for a private ruling concerning the Utah
Department of Revenue's ("the Department") determination of the
proper taxpayer and tax base for purposes of the calculation and payment of the
State's tobacco tax imposed on cigars. We understand that
Utah
Code Section 59-14-302 provides, in part, for a levy of tax upon the sale, use
or storage of
tobacco
products in the State measured by the manufacturer's sales price.
Facts
COMPANY
A, is engaged in sale and distribution of cigars to both wholesalers and
retailers nationwide. It should be noted, however, that in the State of Utah,
COMPANY A sells its products exclusively to retailers. These retailers are
serviced by a nationwide sales force that periodically visit the State and independent
contractors hired to service these accounts. COMPANY A purchases the cigars
from foreign related manufacturers located in XXXXX and the XXXXX. All cigar products purchased from the
foreign manufacturer are warehoused in the Company's 60,000 square foot
facility located in CITY, STATE. This facility also serves as the company's
distribution/customer service center.
As such, it should be noted that COMPANY A hears substantial inventory
risk. In addition, the customer service center in CITY handles invoicing,
collects payments and undertakes most of the day to day accounting functions of
the Company's domestic operations.
Request
for Ruling
Based
oil the facts above, we respectfully request a ruling concerning the State's
determination of the appropriate taxpayer and proper tax base for purposes of
calculating and remitting the tobacco tax to the State. We feel that under the
present circumstances and the law cited below. COMPANY A is a
"distributor" of tobacco products in the State of Utah and therefore
is responsible for the payment of tax to the State, based on the manufacturer's
invoice price. As previously discussed,
COMPANY A purchases all cigars from foreign manufacturers and, in turn,
warehouses, distributes and resells the cigars to retailers in the State of
Utah. Although Utah Tax Code
59-14-302(2) provides that the payment of the tobacco tax is the responsibility
of the "manufacturer, jobber. distributor, wholesaler, retailer, user or consumer." the
statute does not provide a definition of such terms. The majority of states,
however, generally define a "distributor" as any person engaged in
the business of producing or importing tobacco products for sale into the
state. Code Section 59-14-302 provides that the tax is paid at a rate of
"thirty-five (35) percent of the manufacturer's sale price." The
statute defines "manufacturer's sales price" as "the amount
charged by the manufacturer less all discounts..."
The
Company anticipates selling to retailers in Utah beginning in January, 1998. We
would therefore appreciate your prompt attention in this matter. If you need
further information or have any questions, please do not hesitate to contact me
at #####.
Very
truly yours,
NAME
February
4, 1998
NAME
ADDRESS
CITY
STATE ZIP
RE:
Tobacco Products Tax on cigar sales to Utah
Dear
NAME,
We have received your request for
information concerning the cigarette and tobacco tax as applied to cigar sales
made by COMPANY A to Utah retailers. You
have specifically asked which party is responsible for remitting the tax and
how to determine the tax base upon which the tax is applied.
As to the first issue, Utah Code
Ann. §59-14-302 levies a tax on the sale of
tobacco products, such as cigars, in the state of Utah. In addition, Utah Admin. Code R865-20T-1(C) establishes that the tobacco
products tax is a tax on the first purchase of the product within Utah. Your letter indicates that COMPANY A is the
first distributor of the tobacco product within Utah. As such, the Tax Commission would expect COMPANY A to become
licensed by registering and posting a bond as required by §59-14-301 and to
collect and remit the tax as set forth in section 302. To become licensed in the State of Utah,
COMPANY A should complete and return Form TC-69, which is enclosed.
As to the second issue, the tax base
is also defined in Section 59-14-302.
The tax rate of 35% is applied to the amount charged by the manufacturer
less all discounts, and includes original Utah destination freight
charges. The freight charges are
included whether the product is shipped f.o.b. origin or f.o.b. destination and
regardless of who pays them. From the information
you supplied, COMPANY A buys directly from the manufacturer and ships directly
to the Utah retailers, so COMPANY A should have access to all information
required to establish the tax base.
Please let us know if you have any
other questions.
For
the Commission,
Joe
B. Pacheco,
Commissioner
^^