COSTS INCLUDABLE IN RETAIL PRICE OF LARGE CIGARS
Manufacturers of tobacco products:
This circular is to advise you of the provisions of Revenue
Ruling 67-60, Internal Revenue Bulletin 1967-8, 18, which states:
Advice has been requested as to whether mailing and handling costs
charged to the purchaser (consumer) at retail for large cigars, should
be included in the "retail price" of these cigars to determine the proper
class for tax purposes under section 5701 of the Internal Revenue
Code of 1954.
Section 5701 (a) (2) of the Code imposes a tax on large cigars on
the basis of the price at which "removed to retail" and provides that
in determining this retail price "regard shall be had to the ordinary
retail price of a single cigar in its principal market."
Usually the costs of transporting large cigars to the consumer are
not stated separately but are merely included in the basic retail price
quoted to and charged to the consumer. The fact that these trans-
portation charges are quoted separately would not exclude them from
the retail price for Federal tax purposes.
Therefore, it is held that all direct costs to the consumer, with the
sole exception of the exact amount of State and local taxes which are
specifically excluded by the statute, are part of the retail price of a
single cigar for Federal tax purposes. When the retail price of the
single cigar after excluding State and local taxes includes a fraction
of a cent, the fraction is an integral part of the price for determining
the applicable Federal tax.
See Revenue Ruling 55-20, C.B. 1955-1, 516, for method of deter-
mining the retail price of a single cigar in its principal market where
sold singly at retail for more than one price.
Inquiries regarding this circular should refer to its number
and be addressed to the office of your Assistant Regional Commissioner,
Alcohol and Tobacco Tax.
Harold A. Serr
Director, Alcohol and Tobacco Tax Division