Tax Type
Cigarette Tax
Description
Division of cigarette manufacturer
Topic
Taxpayers
Date Issued
05-07-1987
May 7, 1987
Re Ruling Request:Virginia Cigarette Tax
Dear ********************
This will reply to your letter of March 12, 1987 in which you request a reconsideration of tho ruling of February 24, 1987 concerning the applicability of the Virginia cigarette tax to the Taxpayer
Facts
You reiterate the following facts. The Taxpayer is a wholly-owned subsidiary of *********** ("Parent"), a cigarette manufacturer The Taxpayer "is simply an operating extension of the [Parent], and conducts no business other than that which is normally incident to and part of the business of a cigarette manufacturer. It is not staffed or equipped, for example, to operate as a wholesale distributor or dealer." The Taxpayer and Parent were set up as two separate corporations essentially upon considerations of accounting and managerial efficiencies, to separate out the manufacturer's marketing functions into a separate entity..."
The Taxpayer asserts that it is a manufacturer, not a wholesale dealer, and that requiring it to qualify as a dealer exalts form over substance, will not yield additional revenues, and imposes unnecessary burdens on the Taxpayer.
Determination
As set forth in my letter of February 24, 1987, Va Code §58.1-1001 imposes a tax of one and one-quarter mills on each cigarette. The tax is required to be paid by every person in Virginia who sells, stores or receives cigarettes made of tobacco or any substitute thereof, for the purpose of distribution to any person within Virginia. The Taxpayer agrees that no exception to the tax applies, but argues that the Taxpayer is a manufacturer, not a wholesale dealer, and thus not subject to the tax at the outset.
The Taxpayer does not claim that it manufactures cigarettes, but that it functions as a marketing division or department of the Parent, and that any difference between its business "and the marketing arm of any other manufacturer is one of form only." Taxpayers are free to select whatever business structure they desire. However, if the structure chosen falls within the coverage of the statute, the tax applies. The Taxpayer argues that it "clearly" is not a wholesale dealer as defined in the statute. I disagree. The Taxpayer does not manufacture cigarettes; it sells cigarettes. It is a dealer, and because it sells for resale, it is a wholesale dealer. The structure of the statute compels this result. The definition of "retail dealer" includes every person, other than a wholesale dealer, who sells cigarettes. The Taxpayer is not selling at retail, because that definition excludes sales by wholesalers to other wholesalers for resale. The Taxpayer is functioning as a wholesaler by its sales at wholesale to other wholesalers for resale.
The Taxpayer argues that requiring registration will not yield additional revenues for Virginia but will impose unnecessary burdens on the Taxpayer. Such an argument is not relevant to the proper interpretation of the statute.
In short, upon reviewing the information presented and arguments advanced, I find no basis to alter the previous ruling, and again conclude that the Taxpayer must qualify with the Department of Taxation for a dealer's permit and undertake to stamp all cigarettes it distributes, in accordance with Va. Code §§58.1-1003 and 58.1-1012.
Sincerely,
W. H. Forst
Tax Commissioner
Related Documents
Rulings of the Tax Commissioner