PART 1. COMPTROLLER OF PUBLIC ACCOUNTS
SUBCHAPTER H. CIGAR AND TOBACCO TAX
The Comptroller of Public Accounts proposes an amendment to §3.121, concerning definitions, imposition of tax, permits, and reports. New subsection (a)(1) is added to provide a definition of affiliate, and subsequent subsections are renumbered. Renumbered subsection (a)(12) is amended to clarify the definition of "manufacturer's list price." The renumbered subsection (a)(12) amendment clarifies the term "manufacturer's list price" specifying that the price upon which the tax is based is the price reported monthly by manufacturers to the comptroller as required by Tax Code, §155.103(a)(4), which is the highest price at which a product is offered to distributors in Texas who are not affiliates of the manufacturer. Renumbered subsection (a)(12) clarifies and underscores manufacturers' statutory duty to file reports each month that include manufacturer's list price information. Subsection (b)(2) is amended to clarify that free cigars are taxed at the prevailing factory list price and free tobacco products are taxed at the prevailing manufacturer's list price. Subsection (b)(4) is amended to make a technical correction. Subsection (e)(6) is amended to delete wording that was included for clarification prior to September 1, 1999, but since that date has passed, the wording is no longer needed.
John Heleman, Chief Revenue Estimator, has determined that for the first five-year period the rule will be in effect, the proposed amendment would have no significant fiscal impact on units of local government. The proposed amendment would benefit the public by eliminating confusion that has resulted in refund claims, threatened litigation and settlements over taxes due from distributors of tobacco products other than cigars. The resulting clarification would help ensure that the state collects the full amount of the tax imposed by the Legislature from all parties. Since the Legislature dedicated this tax in part to property tax relief, the public will enjoy the benefit of this improvement in the form of greater property tax relief.
Mr. Heleman also has determined that the proposed amendment would have a positive fiscal impact on state government revenues, with gains to both the General Revenue Fund 0001 and the Property Tax Relief Fund 0304. This rule is adopted under Tax Code, Title 2, and does not require a statement of fiscal implications for small businesses. There is no significant anticipated economic cost to individuals who are required to comply with the proposed rule.
Figure: 34 TAC Chapter 3--Preamble
Comments on the proposal may be submitted to Bryant K. Lomax, Manager, Tax Policy Division, P.O. Box 13528, Austin, Texas 78711-3528.
This amendment is proposed under Tax Code, §111.002 and §111.0022, which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of Tax Code, Title 2, and taxes, fees, or other charges which the comptroller administers under other law.
The amendment implements Tax Code, §155.021(b) and §155.0211(b).
§3.121.Definitions, Imposition of Tax, Permits, and Reports.
(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.
(1) Affiliate--A person who, because of stock ownership, contract, or otherwise, controls, is controlled by, or is under common control with another person.
(2) [(1)] Bonded agent--A person
in Texas who is an agent for a principal located outside of Texas
and who receives cigars and tobacco products in interstate commerce
and stores the cigars and tobacco products for distribution or delivery
to distributors under orders from the principal.
(3) [(2)] Cigar--A roll of fermented
tobacco that is wrapped in tobacco and that the main stream of smoke
from which produces an alkaline reaction to litmus paper.
(4) [(3)] Common carrier--A motor
carrier registered under Transportation Code, Chapter 643, or a motor
carrier operating under a certificate issued by the Interstate Commerce
Commission or its successor agency.
(5) [(4)] Distributor--A person who:
(A) receives tobacco products from a manufacturer for the purpose of making a first sale in Texas;
(B) brings or causes to be brought into Texas tobacco products for sale, use, or consumption.
(6) [(5)] Factory list price--The
published manufacturer gross cost to the distributor.
(7) [(6)] Export warehouse--A
location in this state from which a person receives tobacco products
from manufacturers and stores the tobacco products for the purpose
of making sales to authorized persons for resale, use, or consumption
outside the United States.
(8) [(7)] First sale--Except
as otherwise provided by this section, the term means:
(A) the first transfer of possession in connection with purchase, sale, or any exchange for value of tobacco products in intrastate commerce;
(B) the first use or consumption of tobacco products in this state; or
(C) the loss of tobacco products in this state whether through negligence, theft, or other loss.
(9) [(8)] Importer or import
broker--A person who ships, transports, or imports into Texas tobacco
products manufactured or produced outside the United States for the
purpose of making a first sale in this state.
(10) [(9)] Manufacturer--A person
who manufactures or produces tobacco products and sells tobacco products
to a distributor.
(11) [(10)] Manufacturer's representative--A
person who is employed by a manufacturer to sell or distribute the
manufacturer's tobacco products.
(12) [(11)] Manufacturer's list price--The
price required to be reported monthly to the comptroller
under Tax Code, §155.103(a)(4), which shall be the highest gross
price for purchase at which units of a product are offered to distributors
in Texas who are not affiliates of the manufacturer, inclusive of
all delivery, destination or other charges of any kind that are assessed
based on the number of units sold. A selling price less than the manufacturer's
list price is assumed to include a trade discount, special discount
or deal [published manufacturer gross cost to the distributor.
The term is synonymous with factory list price].
(13) [(12)] Permit holder--A
bonded agent, distributor, importer, manufacturer, wholesaler, or
retailer required to obtain a permit under Tax Code, §155.041.
(14) [(13)] Place of business--the term means:
(A) a commercial business location where tobacco products are sold;
(B) a commercial business location where tobacco products are kept for sale or consumption or otherwise stored and may not be a residence or a unit in a public storage facility; or
(C) a vehicle from which tobacco products are sold.
(15) [(14)] Retailer--A person
who engages in the practice of selling tobacco products to consumers
and includes the owner of a coin-operated vending machine.
(16) [(15)] Tobacco product--A
cigar; smoking tobacco, including granulated, plug-cut, crimp-cut,
ready-rubbed, and any form of tobacco suitable for smoking in a pipe
or as a cigarette; chewing tobacco, including plug, scrap, and any
kind of tobacco suitable for chewing; snuff or other preparations
of pulverized tobacco; or an article or product that is made of tobacco
or a tobacco substitute and that is not a cigarette.
(17) [(16)] Trade discount, special
discount, or deals--Includes promotional incentive discounts, quantity
purchase incentive discounts, and timely payment or prepayment discounts.
(18) [(17)] Weight of a cigar--The
combined weight of tobacco and nontobacco ingredients that make up
the total product in the form available for sale to the consumer,
excluding any carton, box, label, or other packaging materials.
(19) [(18)] Wholesaler--A person,
including a manufacturer's representative, who sells or distributes
tobacco products in this state for resale but who is not a distributor.
(b) Imposition of tax. A tax is imposed and becomes due and payable when a permit holder receives cigars or tobacco products for the purpose of making a first sale in this state.
(1) (No change.)
(2) Free cigars [goods] shall
be taxed at the prevailing factory list price and free tobacco
products shall be taxed at the prevailing manufacturer's list price.
(3) (No change.)
(4) A tax is imposed on manufacturers, who manufacture tobacco products in this state, at the time the tobacco products are first transferred in connection with a purchase, sale, or any exchange for value in intrastate commerce.
(5) - (7) (No change.)
(c) - (d) (No change.)
(e) Permit Fees. An application for a bonded agent, distributor, importer, manufacturer, wholesaler, motor vehicle, or retailer permit must be accompanied by the required fee.
(1) - (5) (No change.)
(6) The permit fee for a retailer permit [issued
or renewed after August 31, 1999,] is $180. Retailers who fail
to obtain or renew a retailer permit in a timely manner are liable
for the fee in effect for the applicable permit period, in addition
to the fee described in paragraph (7) of this subsection.
(7) - (10) (No change.)
(f) - (h) (No change.)
This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of the Secretary of State on February 9, 2009.
TRD-200900490
Ashley Harden
Chief Deputy General Counsel
Comptroller of Public Accounts
Earliest possible date of adoption: March 22, 2009
For further information, please call: (512) 475-0387