Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2016
Cigarette and Tobacco Products Tax Law
ANALYSIS OF CALIFORNIA CIGARETTE AND TOBACCO PRODUCTS TAX LAW
Nature and Rate of Tax. A cigarette tax is imposed upon distributors of cigarettes at the rate of six mills ($0.006) for the distribution of each cigarette, including, effective January 1, 1994, one mill to fund a breast cancer awareness campaign. Effective January 1, 1989, (Proposition 99) a Cigarette and Tobacco Products Surtax is imposed upon distributors of cigarettes at the rate of twelve and one-half mills ($0.0125) for each cigarette distributed and a tax is imposed upon distributors of tobacco products, based on the wholesale cost of the products, at a rate determined annually. Effective January 1, 1999 (Proposition 10), another surtax is imposed upon distributors of cigarettes at the rate of twenty-five mills ($0.025) for each cigarette distributed, and an additional surtax is imposed upon distributors of tobacco products, based on the wholesale cost of the products, at a rate determined annually.
"Dealer." A "dealer" is a person, other than a licensed distributor or wholesaler, who engages in the sale of cigarettes or tobacco products. Dealers are required to purchase cigarettes only from licensed distributors or licensed wholesalers.
"Distributor." A "distributor" is, primarily, a person who sells cigarettes or tobacco products in this state with respect to which liability for the tax has not accrued prior to his or her sale thereof. The term also includes certain persons who sell or accept orders for cigarettes or tobacco products, persons who use or consume untaxed cigarettes or tobacco products transported from a point outside this State to a consumer in this State, and persons who place untaxed cigarettes in a vending machine or retail stock for sale to consumers.
"Wholesaler." A "wholesaler" is a person, other than a licensed distributor, who engages in making sales for resale of cigarettes which are contained in packages to which are affixed stamps or meter impressions or tobacco products on which the tax imposed has been paid.
"Cigarette." "Cigarette," as defined in the law, means any roll for smoking, made wholly or in part of tobacco, irrespective of size or shape and irrespective of whether the tobacco is flavored, adulterated or mixed with any other ingredient, where such roll has a wrapping or cover made of paper or any other material, except where such wrapper is wholly or in the greater part made of tobacco and such roll weighs over three pounds per thousand.
"Tobacco Products." "Tobacco products" include all forms of cigars, smoking tobacco, chewing tobacco, snuff, and other products containing at least 50 percent tobacco, except cigarettes.
Licenses and Bonds. Any person engaging in the sale of cigarettes or tobacco products as a distributor must obtain a license for each place of business at which he or she distributes cigarettes or tobacco products and must file with the State Board of Equalization a surety bond or other security as provided by the law. Unlicensed distributors are required to register with the board. Any person engaging in the sale of cigarettes as a wholesaler must obtain a license for each place of business at which he or she engages in the business of selling cigarettes as a wholesaler. No fee or bond is required for the issuance of a wholesaler's license.
Sales to Governmental Agencies. The tax applies to distributions of cigarettes or tobacco products to the United States, its agencies and instrumentalities, with the exception of sales to exchanges, commissaries and ships' stores of the armed forces, and sales to the Veterans Administration. The tax generally applies to distributions to the State of California, a subdivision, or city, county, or city and county thereof, or any agency or instrumentality thereof.
Certain Exempt Transactions. 1. Sales by manufacturers to licensed distributors are exempt.
2. Sales by distributors to common carriers engaged in interstate or foreign passenger service, or to a person authorized to sell cigarettes or tobacco products on the facilities of such carrier are exempt. Such carrier or person must pay an equivalent tax when selling the cigarettes or tobacco products.
3. A sale or gift of federally tax-free cigarettes or tobacco products to a veterans' institution is exempt.
4. Distributions of federally tax-free cigarettes or tobacco products which are under internal revenue bond or customs control are exempt.
5. The sale of cigarettes or tobacco products by the original importer to a licensed distributor if the cigarettes or tobacco products are manufactured outside the United States is exempt.
6. Distributions which this state is prohibited from taxing under the Constitution or laws of the United States or under the Constitution of this state are exempt. These include, for example, shipments by distributors to purchasers in other states, territories or foreign countries of cigarettes or tobacco products which are not to be returned to this state before use.
Tax on Use or Consumption of Cigarettes or Tobacco Products. Any person who receives cigarettes or tobacco products shipped to him or her from without the state for his own use or consumption is required to pay a tax upon their use or consumption in this state at the rate applicable to distributions regardless that tax may have been paid to another state. Further, any person who obtains cigarettes in quantities of more than 400 at one time or any tobacco products from an exempt instrumentality of the U.S. Government is required to pay a tax on the use or consumption in this state of all of the cigarettes or tobacco products so obtained. Any person who brings or transports into this state cigarettes in quantities of more than 400 at any one time or any tobacco products is required to pay a tax on the use or consumption in this state of all of the cigarettes or tobacco products so obtained, regardless that tax may have been paid to another state. The tax is payable directly to the Board unless the cigarettes or tobacco products are purchased from a person engaged in business in this state who has collected the tax and given the purchaser a receipt therefor. For the requirement to collect the tax, see Section 30108.
Any consumer or user who is required to pay the tax directly to the Board, must make a report and pay the tax to the Board on or before the 25th day of the month following the receipt of the cigarettes or tobacco products.
Payment of Tax. The tax on the distribution of cigarettes is, for the most part, paid by distributors through the use of stamps or meter impressions. Stamps and meter register settings are sold through convenient outlets throughout the state by the State Board of Equalization. Licensed cigarette distributors are allowed a discount of 0.85 percent of the value of stamps or meter impressions at the time of purchase of the tax indicia. A tax stamp or meter impression of the proper denomination must be affixed to each package of cigarettes before it is distributed. Provision is made for refund or credit for unused stamps or meter register settings as well as for stamps and meter impressions which have been affixed to packages of cigarettes which become unfit for use or unsalable or which are destroyed prior to distribution.
The tax on the distribution of tobacco products is paid by distributors by their filing monthly returns with the Board.
Reports. Every distributor is required to file a monthly report with the board on forms prescribed by the board respecting his distribution of cigarettes or tobacco products and such other information as the board may require. Failure to file such reports, returns and other data as may be required will result in the imposition of appropriate penalties. Every wholesaler is required to file a monthly report with the board respecting his inventory, purchases, and sales of cigarettes.
Administration. Every distributor and every person dealing in, transporting or storing cigarettes or tobacco products in this state shall keep such records, reports, invoices and other pertinent documents in such form as the board may require. The board is authorized to make prescribed rules and regulations relating to the administration and enforcement of the law and is also authorized to make an examination of books, papers, records and equipment of persons dealing in, transporting or storing cigarettes or tobacco products.
Disposition of Proceeds. All payments made to the state for the 5 mill tax on the distribution of cigarettes are deposited in the State Treasury to the credit of the Cigarette Tax Fund. Money deposited in this fund is used to pay any refunds of the tax authorized by the Cigarette Tax Law and support state government. Payments made to the state for the Proposition 99 surtax on cigarettes and tobacco products are deposited into the Cigarette and Tobacco Products Surtax Fund which consists of six separate accounts and may only be appropriated for purposes specified in Section 30122. Funds from the one mill tax on cigarettes are deposited in the Breast Cancer Fund for the purpose of funding research and awareness campaigns. Payments to the state for the Proposition 10 surtax on cigarettes and tobacco products are deposited into the California Children and Families First Trust Fund.
Violations. Severe criminal penalties are provided for forging of tax stamps or meter impressions and for possessing, selling, or transporting packages of cigarettes to which there are not affixed stamps or meter impressions required to be affixed thereto. Provision is also made for seizure of cigarettes with respect to which the tax has not been paid or stamps or meter impressions affixed or tobacco products upon which the tax has not been paid, as required by the law. Vending machines in which such cigarettes or tobacco products are held for sale may also be seized and forfeited to the state. Other criminal penalties apply for failure to file reports, for making false reports, for improperly transporting on the highways unstamped cigarettes or tobacco products upon which the tobacco products surtax has not been paid, and for loading a vending machine with such cigarettes or tobacco products.