EXCISE TAX REDUCTION ACT OF 1965
Manufacturers and importers of tobacco products, manufacturers
of cigarette papers and tubes, proprietors of export warehouses,
dealers in tobacco materials, and others concerned:
Purpose. The purpose of this industry circular is to advise you of the
enactment of the Excise Tax Reduction Act of 1965, Public Law 89-44, to call
your attention to the amendments to the statutes which affect tobacco, and to
inform you concerning actions to be taken and procedures to be followed as
a result of these amendments.
Background. On June 21, 1965, H. R. 8371 was enacted into law as Public
Law 89-44. This Act made the following amendments to the statutes affecting
1. Effective July 1, 1965, the tax rate of $4 per thousand on small .
cigarettes was made permanent by amendment of Section 5701 of the
Internal Revenue Code.
2. Effective on the same date, the definitions of "cigar" and
"cigarette" contained in Section 5702 were expanded to recognize
the use of reconstituted tobacco as a wrapper. Industry Circular
No. 65-15, issued June 23, 1965, sets forth the procedure to be
followed when reconstituted tobacco is to be used as a wrapper for
rolls of tobacco.
3. Effective October 1, 1965, Section 5705 will provide that as an
alternative to the filing of a claim for refund of tax on tobacco
products or cigarette papers and tubes a claim for credit may be filed.
4. The repeal of the 10¢ per pound tax on manufactured tobacco will
become effective January 1, 1966.
5. Controls on the handling and shipment of tobacco materials will
be eliminated on January 1, 1966.
Actions to be taken and procedures to be followed.
Manufacturer of tobacco products
Claim for credit
In lieu of filing a claim for refund of tax paid on tobacco products
lost (otherwise than by theft) or destroyed, by fire, casualty,
or act of God, while in your possession or ownership, or Withdrawn
by you from the market, you may, effective October 1, 1965, file
a claim for credit on Form 2635, "Claim Alcohol and Tobacco Taxes,"
accompanied by the same evidence required in connection, with a claim
for refund. When you are notified by the assistant regional commissioner,
alcohol and tobacco tax, of allowance of the claim for credit, you may
apply the credit by making an adjusting entry on the next subsequent tax
return. Of course, your remittance would be reduced by the amount of
the credit. Prior to notification, you may not anticipate allowance of
your claim by making an adjusting entry in a tax return. A Treasury
decision will be issued to provide for this alternative in the
Since the repeal of the 10¢ per pound tax on manufactured tobacco does
not become effective until January 1, 1966, you will continue to report
operations and transactions at each of your factories handling
manufactured tobacco (smoking tobacco, chewing tobacco, and snuff)
under existing regulations until the close of business December 31, 1965.
Your tax return for the period ending December 31, 1965, will include
removals of manufactured tobacco until the close of business on that
day. If your operations and transactions are in manufactured tobacco
only, your December report should be marked "Concluding Report." The
assistant regional commissioner, alcohol and tobacco tax, will take
the necessary actions to terminate the related bond and permit. The
same procedures apply also for a factory which produces only manufactured
tobacco, but which receives cigars or cigarettes in bond. With the
termination of the bond and permit, neither cigars nor cigarettes may be
received in bond in such factory. If you conduct operations and transactions in manufactured tobacco in a factory where either cigars or
cigarettes, or both are manufactured, you may, beginning January 1, 1966,
continue such operations as contemplated by Section 270.72 of the
regulations. In such case, your records should show the date and total
quantity, in pounds, of manufactured tobacco and tobacco materials
received, shipped or delivered, lost, and destroyed. The regulations,
monthly reports, and tax returns will be revised to reflect repeal of
the tax on manufactured tobacco.
PLEASE NOTE: There are no provisions in the law for floor stocks refunds
in connection with the termination of the tax on manufactured tobacco;
and beginning January 1, 1966, the claims provisions in Sections 5705
and 5708 of the Code will not apply to manufactured tobacco. However,
a claim relating to manufactured tobacco that is filed or mailed on
or before December 31, 1965, will be processed.
Also, with the elimination of the reporting of manufactured tobacco,
statistics will no longer be compiled by the Internal Revenue Service
on the production and removal of manufactured tobacco.
With the elimination of all controls on the handling and shipment of
tobacco materials, beginning January 1, 1966, you will not be subject
to the restrictions presently contained in the regulations regarding
their handling and shipment, and you will not be required to show
them in your records unless cigars or cigarettes are produced in the
factory. If cigars or cigarettes are produced, then your records
should show the date and total quantity, in pounds, of manufactured
tobacco and tobacco materials received, shipped or delivered, lost,
Manufacturer of cigarette Papers and tubes
In lieu of filing a claim for refund of tax paid on cigarette papers and
tubes lost (otherwise than by theft) or destroyed, by fire, casualty, or
act of God, while in your possession or ownership, or withdrawn by you
from the market, you may, effective October 1, 1965, file a claim for
credit by utilizing Form 2635, and by following the procedures outlined
above for the manufacturer of tobacco products. A Treasury decision will
be issued to provide for this alternative in the regulations.
Dealer in tobacco materials
Beginning on January 1, 1966, you may operate as a dealer in tobacco
materials without bond and without maintaining the records and observing
the restrictions on handling, shipment, and delivery of tobacco materials
presently required by the regulations. You may handle tobacco materials
in any manner at any place so long as such handling does not result in
a taxable tobacco product (cigar or cigarette). The assistant regional
commissioner, alcohol and tobacco tax, for your region, will take the
necessary actions to terminate bonds in effect at the close of business
December 31, 1965. The regulations in Part 280, "Dealers in Tobacco
Materials," will be revoked in their entirety effective January 1, 1966.
Export warehouse proprietor
Because the elimination of the 10¢ per pound tax on manufactured tobacco
will become effective January 1, 1966, your December 1965 monthly report
will be the last monthly report in which you will include manufactured
tobacco. Beginning January 1, 1966, manufactured tobacco can be received
by you and stored, transferred, or removed for export without specific
requirements to maintain a record of it, to include it in your monthly
report, or to show it in the notice of removal. Cigars and cigarettes,
however, will be reported and accounted for as heretofore. The appropriate
forms and applicable regulations will be revised.
The repeal of the 10¢ per pound tax on manufactured tobacco will become
effective January 1, 1966. Beginning on that date, you will not be
required to pay any internal revenue tax on tobacco, other than cigars
and cigarettes, and all internal revenue restrictions will be lifted on
the removal of tobacco materials from customs custody. This, however,
has nothing to do with the payment of customs duty.
Inquiries. Inquiries concerning this circular should refer to its number
and be addressed to your assistant regional commissioner, alcohol and
Harold A. Serr
Director, Alcohol and Tobacco Tax Division