06-48 | Virginia Tax

Tax Type

Cigarette Tax

Description

Applicability of Cigarette and Tobacco Products Taxes

Topic

Taxability of Persons and Transactions

Date Issued

04-11-2006

April 11, 2006

Re: Ruling Request: Virginia Cigarette and Tobacco Products Taxes

Dear *****:

This is in response to your letter requesting a ruling concerning the Virginia Cigarette and Tobacco Products Taxes.

FACTS

You state that ***** (the "Taxpayer") is interested in selling cured whole leaf tobacco that has not been stemmed, cut or otherwise processed (the "whole leaf tobacco") at wholesale and retail within the Commonwealth. The Taxpayer is also interested in selling small presses and cutting equipment (the "equipment") that may be used to produce smokeable tobacco from the whole leaf tobacco. You seek guidance regarding the tax consequences of selling the whole leaf tobacco and equipment at wholesale and retail within the Commonwealth.

You have submitted samples of the whole leaf tobacco to the Alcohol and Tobacco Tax and Trade Bureau of the United States Department of the Treasury (the "TTB") and requested guidance concerning the federal tobacco products excise tax implications of this plan. In response, the TTB has issued a letter stating that the whole leaf tobacco does not meet any of the definitions of "tobacco products" provided by Internal Revenue Code ("IRC") § 5702. Accordingly, the sale of the whole leaf tobacco by the Taxpayer is not subject to the federal excise tax imposed on tobacco products by IRC § 5701. Likewise, the sale of equipment that may be used to produce smokeable tobacco from the whole leaf tobacco is not regulated by the TTB. The TTB notes that any person who uses the whole leaf tobacco or the equipment to make a "tobacco product" as defined by IRC § 5702 would be subject to the federal excise tax unless the tobacco product was produced solely for that person's consumption or use. The TTB recommends that the Taxpayer include a warning label to this effect with the whole leaf tobacco and the equipment.

RULING

Virginia Tobacco Products Tax

The Virginia Tobacco Products Tax is levied pursuant to Code of Va. § 58.1-1021.02. Code of Va. § 58.1-1021.01 provides that:

- "Tobacco product" or "tobacco products" means (i) "cigar" as defined in § 5702 (a) of the Internal Revenue Code, and as such section may be amended; (ii) "smokeless tobacco" as defined in § 5702 (m) of the Internal Revenue Code, and as such section may be amended; (iii) "pipe tobacco" as defined in § 5702 (n) of the Internal Revenue Code, and as such section may be amended; or (iv) "roll-your-own tobacco" as defined in § 5702 (o) of the Internal Revenue Code, and as such section may be amended.

The TTB has reviewed a sample of the whole leaf tobacco and determined that it does not meet any of the definitions of "tobacco products" provided by IRC § 5702. As the Code of Va. § 58.1-1021.01 definition of "tobacco products" references four of the definitions of tobacco products provided by IRC § 5702, I see no reason not to adopt the TTB's conclusion. Accordingly, it is my determination that cured whole leaf tobacco that has not been stemmed, cut or otherwise processed is not a tobacco product subject to the Virginia Tobacco Products Tax.

Virginia Cigarette Tax

The Virginia Cigarette Tax, levied pursuant to Code of Va. § 58.1-1001, does not define the term "cigarette." Although Code of Va. § 3.1-336.1 defines the term for purposes of the nonparticipating manufacturer statutes, it considers "roll your own tobacco to be cigarettes. As "roll your own" tobacco is subject to the Virginia Tobacco Products Tax, it should not be considered as a "cigarette" for purposes of the Virginia Cigarette Tax. This is consistent with IRC § 5702, which defines "cigarette" to mean:

- (1) any roll of tobacco wrapped in paper or in any substance not containing tobacco, and

- (2) any roll of tobacco wrapped in any substance containing tobacco which, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be offered to, or purchased by, consumers as a cigarette described in paragraph (1).

The TTB has reviewed a sample of the whole leaf tobacco and determined that it does not meet the definition of "cigarette" provided by IRC § 5702. I see no reason not to adopt the TTB's conclusion. Accordingly, it is my determination that cured whole leaf tobacco that has not been stemmed, cut or otherwise processed is not a cigarette
subject to the Virginia Cigarette Tax.

Tobacco Presses and Cutting Equipment

Sales of tobacco presses and cutting equipment are not regulated by the Virginia Cigarette Tax or the Virginia Tobacco Products Tax. As the whole leaf tobacco may be processed into taxable cigarettes and tobacco products using this equipment, I concur with the TTB's recommendation that the Taxpayer include a warning label to this effect with the whole leaf tobacco and the equipment.

Other Virginia Taxes

Code of Va. § 58.1-603 imposes a sales tax upon the sale of tangible personal property sold in the Commonwealth. The seller collects the tax from the customer by separately stating the amount of the tax and adding it to the sales price. Retail sales are defined as sales to a consumer or to any person for any purpose other than for resale. Prior to making any retail sales within the Commonwealth, you must register with the Department to collect and remit sales tax. Additionally, in general, every corporation organized under the laws of Virginia, and every foreign corporation registered with the State Corporation Commission for the privilege of doing business in Virginia or receiving income from Virginia sources, must file a corporation income tax return. Pass-through entities are required to submit an annual informational return.

Virginia Department of Agriculture and Consumer Services

I recommend that you contact the Virginia Department of Agriculture and Consumer Services (VDACS) to determine if additional regulations apply to your business. The VDACS web site is located at http://www.vdacs.virginia.gov/.

I trust that this reply answers your ruling request. If you should have any questions regarding this ruling, you may contact ***** Office of Policy and Administration, Policy Development, at *****.

- - - - Sincerely,

- - - - Kenneth W. Thorson
        Tax Commissioner

Rulings of the Tax Commissioner