34 TAC §3.121
The Comptroller of Public Accounts proposes a new §3.121,
concerning definitions, imposition of tax, permits, and reports. The comptroller
has determined that the consolidation of sections of similar subject matter
will benefit the taxpayers by providing a more effective means of obtaining
information. Therefore, the existing §§3.121, 3.122, 3.123, 3.124,
3.126, and 3.127 of this title are proposed for repeal. The new §3.121
consolidates the text from the current §3.121 (relating to Delivery of
Tax-Free Cigar and Tobacco Products) with the text from the existing §3.122
(relating to Permits Required for Vehicles), §3.123 (relating to Interpretation), §3.124
(relating to Transfer and Correction of Permits), §3.126 (relating to
Change of Date for Filing Cigar and Tobacco Reports and Payment), and §3.127
(relating to Weight of Cigars Defined). Certain definitions have been added
and the content of the existing sections has been updated to reflect legislative
changes. The 76th Legislature expanded the definition for a commercial business
location, required that a permit holder be provided with an opportunity for
a hearing before a permit can be suspended or revoked, and changed the due
date for the distributor's and manufacture's monthly reports to the comptroller.
The 77th Legislature added "importer" and "manufacturer" to the types of permits
available under Chapters 154 and 155.
James LeBas, Chief Revenue Estimator, has determined that for the first
five-year period the rule is in effect there will be no fiscal implications
to the state or to units of local government.
Mr. LeBas also has determined that for the first five-year period the rule
is effect the consolidation of sections of similar subject matter into a single
rule would benefit the public by providing a more effective means of accessing
information regarding their tax responsibilities. This new section is adopted
under Tax Code, Title 2, and does not require a statement of fiscal implications
for small businesses. There are no additional costs to persons who are required
to comply with the new section.
Comments on the proposal may be submitted to Bryant K. Lomax, Manager,
Tax Policy Division, P.O. Box 13528, Austin, Texas 78711.
This new section is proposed under Tax Code, §111.002, 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.
The new section implements Tax Code, Chapter 155.
§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)
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.
(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.
(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.
(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.
(5)
Factory list price--The published manufacturer gross cost
to the distributor.
(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.
(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.
(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.
(9)
Manufacturer--A person who manufactures or produces tobacco
products and sells tobacco products to a distributor.
(10)
Manufacturer's representative--A person who is employed
by a manufacturer to sell or distribute the manufacturer's tobacco products.
(11)
Manufacturer's list price--The published manufacturer
gross cost to the distributor. The term is synonymous with factory list price.
(12)
Permit holder--A bonded agent, distributor, importer,
manufacturer, wholesaler, or retailer required to obtain a permit under Tax
Code, §155.041.
(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.
(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.
(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.
(16)
Trade discount, special discount, or deals--Includes promotional
incentive discounts, quantity purchase incentive discounts, and timely payment
or prepayment discounts.
(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.
(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)
Tax Rates
(A)
the tax on cigars is calculated at
(i)
$ .01 per 10 or fraction of 10 on cigars that weigh three
pounds or less per thousand;
(ii)
$7.50 per thousand on cigars that weigh more than three
pounds per thousand and that are sold at factory list price, exclusive of
any trade discount, special discount, or deal, for 3.3 cents or less each;
(iii)
$11 per thousand on cigars that weigh more than three
pounds per thousand and that are sold at factory list price, exclusive of
any trade discount, special discount, or deal, for more than 3.3 cents each,
and that contain no substantial amount of nontobacco ingredients; and
(iv)
$15 per thousand on cigars that weigh more than three
pounds per thousand and that are sold at factory list price, exclusive of
any trade discount, special discount, or deal, for more than 3.3 cents each,
and that contain a substantial amount of nontobacco ingredients.
(B)
The tax rate for tobacco products other than cigars is
35.213% of the manufacturer's list price, exclusive of any trade discount,
special discount, or deal.
(2)
Free goods shall be taxed at the prevailing factory list
price.
(3)
A person who receives or possesses tobacco products on
which a tax of more than $50 would be due is presumed to receive or possess
the tobacco products for the purpose of making a first sale in this state.
This presumption does not apply to common carriers or to manufacturers.
(4)
A tax 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)
The delivery of tobacco products by a principal to its
bonded agent in this state is not a first sale.
(6)
If a manufacturer sells tobacco products to a purchaser
in Texas and ships the products at the purchaser's request to a third party
distributor in Texas, then the purchaser has received the tobacco products
for first sale in Texas.
(7)
The person in possession of cigars or tobacco products
has the burden to prove payment of the tax.
(c)
Permits required. To engage in business as a distributor,
importer, manufacturer, wholesaler, bonded agent, or retailer a person must
apply for and receive the applicable permit from the comptroller. The permits
are not transferable.
(1)
A person who engages in the business of a bonded agent,
distributor, importer, manufacturer, wholesaler, or retailer without a valid
permit is subject to a penalty of not more than $2,000 for each violation.
Each day on which a violation occurs is a separate offense. A new application
is required if a change in ownership occurs (sole ownership to partnership,
sole ownership to corporation, partnership to limited liability company, etc.).
Each legal entity must apply for its own permit(s). All permits issued to
a legal entity will have the same taxpayer number.
(2)
Each distributor, importer, manufacturer, wholesaler, bonded
agent, or retailer shall obtain a permit for each place of business owned
or operated by the distributor, importer, manufacturer, wholesaler, bonded
agent, or retailer. A new permit shall be required for each physical change
in the location of the place of business. Correction or change of street listing
by a city, state, or U.S. Post Office shall not require a new permit so long
as the physical location remains unchanged.
(3)
Permits are valid for one place of business at the location
shown on the permit. If the location houses more than one place of business
under common ownership, an additional permit is required for each separate
place of business. For example, a retailer must have a separate permit for
each vending machine including several machines at one location.
(4)
A vehicle from which cigars and tobacco products are sold
is a place of business and requires a permit. A motor vehicle permit is issued
to a bonded agent, retailer, distributor, or wholesaler holding a current
permit. Vehicle permits are issued bearing a specific motor vehicle identification
number and are valid only when physically carried in the vehicle having the
corresponding motor vehicle identification number. Vehicle permits may not
be moved from one vehicle to another. Each cigar or tobacco product manufacturers
sales representative is required to purchase a wholesale dealer's permit for
each manufacturer's vehicle operated. No cigar and tobacco product permit
is required for a vehicle used only to deliver invoiced tobacco products.
(5)
The comptroller may issue a combination permit for cigarettes,
tobacco products, or cigarettes and tobacco products to a person who is a
distributor, importer, manufacturer, wholesaler, bonded agent, or retailer
as defined by the Tax Code, Chapter 154 and Chapter 155. A person who receives
a combination permit pays only the higher of the two permit fees.
(6)
The comptroller will not issue permits for a residence
or a unit in a public storage facility because tobacco products must not be
stored at such places.
(d)
Permit Period.
(1)
Bonded agent, distributor, importer, manufacturer, wholesaler,
and motor vehicle permits expire on the last day of February of each year.
(2)
Retailer permits expire on the last day of May of each
even-numbered year.
(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)
The permit fee for a bonded agent is $300.
(2)
The permit fee for a distributor is $300.
(3)
The permit fee for a manufacturer with representation in
Texas is $300.
(4)
The permit fee for a wholesaler is $200.
(5)
The permit fee for a motor vehicle is $15.
(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)
A $50 fee is assessed, in addition to the regular permit
fee, for failure to obtain or renew a permit in a timely manner.
(8)
No permit fee is required to obtain an importer permit
or to register a manufacturer when the manufacturer is located out of state
with no representation in Texas.
(9)
The comptroller prorates the permit fee for new permits
according to the number of months remaining in the permit period. If a permit
will expire within three months of the date of issuance, the comptroller may
collect the prorated permit fee for the current permit period and the total
permit fee for the next permit period.
(10)
An unexpired permit may be returned to the comptroller
for credit on the unexpired portion only upon the purchase of a permit of
a higher classification.
(f)
Permit issuance, denial, suspension, or revocation.
(1)
The comptroller shall issue a permit to a distributor,
importer, manufacturer, wholesaler, bonded agent, or retailer if the comptroller
has received an application and any applicable fee, the applicant has complied
with Tax Code, §155.041, and the comptroller determines that the issuance
of such permit will not jeopardize the administration and enforcement of Tax
Code, Chapter 155.
(2)
If the comptroller determines that an existing permit should
be suspended or revoked or a permit should be denied, after notice and opportunity
for hearing, because the applicant has failed to disclose any information
required by Tax Code, §155.041(d), (e), and (f), including the applicant's
prior conviction of a crime and the relationship of the crime to the license,
the comptroller will notify the applicant or permittee in writing by personal
service or by mail of the reasons for the denial, suspension, revocation,
or disqualification, the review procedure provided by Occupations Code, §53.052,
and the earliest date that the permit holder or applicant may appeal the denial,
suspension, revocation, or disqualification.
(g)
Sale and delivery of tax-free cigars and tobacco products
to the United States government.
(1)
Distributors may use their own vehicles to deliver previously
invoiced quantities of tax-free cigars and tobacco products to instrumentalities
of the United States government. These tax-free products must be packaged
in a manner in which they will not commingle with any other cigars or tobacco
products.
(2)
Each sale of tax-free cigars and tobacco products by a
distributor to an instrumentality of the United States government shall be
supported by a separate sales invoice and a properly completed federal exemption
certificate. Sales invoices must be numbered and dated and must show the name
of the seller, name of the purchaser, and the destination.
(h)
Reports. All tobacco distributor and manufacturer reports
and payments must be filed on or before the last day of each month for transactions
that occurred during the preceding month.
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 27, 2003.
TRD-200301461
Martin Cherry
Chief Deputy General Counsel
Comptroller of Public Accounts
Earliest possible date of adoption: April 13, 2003
For further information, please call: (512) 475-0387