TAX ON LARGE CIGARS
Manufacturers and Importers of Tobacco Products, Proprietors
of Tobacco Export Warehouses and Others Concerned:
PURPOSE. This circular is to inform you of revised
procedures resulting from the changed system of taxation for
BACKGROUND. Section 2128 of Public Law 94-455 changed the
basis of taxing large cigars from the "tax class" system based on
retail price to a percentage tax based on the "wholesale price." A
notice of proposed regulatory changes necessitated by this changed
tax was published in the Federal Register on Friday, December 3,
1976, 41 F.R. 53055. Final regulations should be published no
later than January 1977.
EFFECTIVE DATE. This new tax rate system goes into effect
on February 1, 1977, and will apply to all taxable removals on and
after that date. All taxable removals prior to that date must
be taxpaid under the present "tax class" system.
RATE OF TAXATION. The new tax rate system imposes on
large cigars a percentage tax based on the "wholesale price"
as defined in the law. The "wholesale price" is the manufacturer's
or importer's suggested delivered price at which the large cigars
are to be sold to retailers before any trade, cash, or other
discounts, or any promotion, advertising, display, or similiar
allowances. The tax rate is 8 1/2 % of the wholesale price, with
a maximum tax of $20 per thousand cigars. The $20 maximum
tax will apply to large cigars with a wholesale price of more
than $235.294 per thousand.
DETERMINATION OF WHOLESALE PRICE. The wholesale
price (suggested delivered price to retailers) established by the
manufacturer or importer must be consistent with the price
actually paid by retailers. Where the suggested delivered price
to retailers is not adequately supported by actual sales, the
taxable wholesale price is the price for which cigars of comparable
retail price are sold to retailers in the ordinary course of trade,
as determined by the Assistant Director (Regulatory Enforcement),
Bureau of Alcohol, Tobacco and Firearms. ATF Ruling 77-2
provides a listing for manufacturers and importers to use in
properly determining the tax on large cigars where the
suggested delivered price to retailers is not adequately supported
by actual sales, or where there is no suggested delivered price to
retailers. Rules for the proper determination of wholesale price
in various situations are provided in the amended regulations.
(Manufacturers should refer to 27 CFR 270.22, and importers to
27 CFR 275.39. )
PACKAGING INFORMATION. The regulations proposed in
December 1976 included a requirement that packages of domestic
and imported large cigars removed on or after February 1, 1977,
must show the wholesale price per thousand cigars, either in
numerals or in a prescribed letter code. Several objections to this
requirement were received from the industry, the most significant
being that marking large cigar packages would impose excessive
expenditures on the industry without corresponding benefits to the
government. Because we feel that a careful study is necessary
before we make a judgment on this matter, the effective date of
the price marking requirements (27 CFR 270.214, 275.75,
290.186, 290.253, and 295.44) will be postponed for at least 6
months. After thorough study, if the Bureau decides to require
such package markings, notification will be published in the
Federal Register at least 90 days prior to the effective date.
Because the price marking requirement will be temporarily
suspended, beginning February 1, 1977, and until notified as
explained above, manufacturers and importers will not be required
to imprint or affix wholesale price information on large cigar
packages. However, manufacturers and importers may use up
existing stocks of packaging materials which have been imprinted
with the previously required retail tax class information, or which
have been imprinted with the wholesale price information in antici-
pation of the new regulations.
STATISTICAL CLASSES. For statistical reporting purposes,
large cigars will be divided into eight classes (statistical classes
A through H), according to the wholesale price. The new statis-
tical classes are structured to closely parallel the former tax
classes, so that comparability of statistics under the old and new
tax systems can be achieved. In effect, each of the new statistical
classes is comparable to one of the former tax classes; except that
the former tax classes A and B are combined in the new statistical
class A, the former tax class E is divided into the two statistical
classes D and E, and the former class G is divided into the two
new classes G and H.
IDENTIFYING LARGE CIGARS ON MANUFACTURERS'
RECORDS, REPORTS AND TRANSACTION FORMS. In
general, large cigars that are removed from the factory on or
after February 1, 1977, must be identified in all records, reports,
and transaction forms by their wholesale price rather than as
previously by tax class. However, in the case of the record of
tax determined products received in the factory (required by 27
CFR 270.183(i)), only the total number of large cigars of all
wholesale prices need be shown, since without the wholesale price
information on packages it will probably not be possible, in many
instances,to know the actual wholesale price on which the tax was
CLAIMS BY MANUFACTURERS AND IMPORTERS. Without
wholesale price information on packages, it may not be possible
for manufacturers or importers to identify on claims and ac-
companying schedules the actual wholesale price of cigars with-
drawn from the market. When manufacturers or importers file
claims on large cigars withdrawn from the market, and the
wholesale price on which tax was paid cannot be definitely
established by the manufacturer or importer, the amount of
refund or credit allowable will be based on the lowest wholesale
price applicable to the cigars during the period that the record
of large cigar wholesale prices (prescribed by 27 CFR 270.187
and 275.181) is required to be kept (between 3 and 4 years --
see 27 CFR 270.185 or 275.22). In connection with this, the
manufacturer or importer must insert a certification on either
ATF F 3069, Schedule of Cigars, Cigarettes, or Cigarette
Papers or Tubes Withdrawn From the Market, ATF F 2635,
Claim - Alcohol and Tobacco Taxes, or IRS Form 843, Claim,
which must read as follows: "The amounts claimed relating
to large cigars are based on the lowest wholesale prices
applicable to such cigars during the required record retention
period, except where specific documentation is submitted with
the claim to establish that any greater amount of tax claimed
was actually paid. "
IDENTIFYING LARGE CIGARS ON EXPORT WAREHOUSE
PROPRIETORS' RECORDS, REPORTS AND TRANSACTION
FORMS. Beginning February 1, 1977, export warehouse pro-
prietors may identify large cigars in their required daily records
and their monthly reports simply as large cigars without distin-
guishing among tax classes or wholesale prices. However, in
establishing the amount of tax liabilities it is necessary to know
the applicable wholesale price ( or tax class for cigars received
before February 1, 1977). Consequently, export warehouse pro-
prietors must ascertain and use the wholesale price (or tax class)
when identifying large cigars and computing the tax liability on
ATF F 2150, Notice of Removal of Cigars, Cigarettes, Cigarette
Papers, or Cigarette Tubes from Export Warehouse. When it is
not practical for the export warehouse proprietor to establish the
actual wholesale price of large cigars where it is necessary to
compute the tax liability, proprietors must do so by using the
maximum tax rate of $20 per thousand.
FORMS AFFECTED. All ATF forms affected by the change in
taxation of large cigars have been revised to conform to the new
regulatory requirements. The following is a list of these revised
forms which all bear an edition date of 2-77:
NEW FORMS LISTING
ATF F 2140 Monthly Report - Export Warehouse Proprietor.
ATF F 2147 Claim for Drawback of Tax on Cigars, Cigarettes,
Cigarette Papers or Cigarette Tubes.
ATF F 2149 Notice of Removal of Cigars, Cigarettes, Cigarette
Papers, or Cigarette Tubes from Factory.
ATF F 2150 Notice of Removal of Cigars, Cigarettes, Cigarette
Papers, or Cigarette Tubes from Export Warehouse.
ATF F 2987 Computation of Tax and Agreement to Pay Tax on
Puerto Rican Cigars or Cigarettes.
ATF F 2988 Deferred Tax Return - Puerto Rican Cigars or
ATF F 2989 ATF Officer's Statement of Computation of Tax
ATF F 3065 Record of Large Cigars.
ATF F 3067 Inventory - Manufacturers of Tobacco Products.
ATF F 3068 Monthly Report - Manufacturer of Tobacco Products.
ATF F 3069 Schedule of Cigars, Cigarettes, or Cigarette Papers
or Tubes Withdrawn from the Market.
ATF F 3071 Tax Return - Manufacturer of Tobacco Products.
ATF F 3073 Prepayment Tax Return - Puerto Rican Cigars,
Cigarettes, Cigarette Papers and Cigarette Tubes.
ATF F 3074 ATF Officer's Statement of Prepayment of Tax in
ATF F 3075 Certificate of Tax on Puerto Rican Cigars, Cigarettes,
Cigarette Papers, or Cigarette Tubes.
ATF F 3373 Inventory - Export Warehouse Proprietor.
ATF F 4640 Remittance Transmittal (ATF).
Only editions of the preceding forms dated before February 1977,
should be used for periods or transactions occurring up to and
including January 31, 1977. Hence, the tax return for the period
January 16-31, 1977, and the monthly report for January 1977,
should be prepared on the earlier editions of the appropriate
forms. For all periods and transactions on or after February 1,
1977, only new revisions of the forms dated 2-77 or later
should be used.
AVAILABILITY OF FORMS. An initial quantity of the revised
forms will be automatically mailed to manufacturers and pro-
prietors as soon as they are available. Any additional quantities
needed should be ordered in the usual way from the ATF Distribution
Center at the following address:
Bureau of Alcohol, Tobacco and Firearms
3800 South Four Mile Run Drive
Arlington, Virginia 22206
INQUIRIES. Inquiries concerning this circular should refer to
its number and be addressed to the Assistant Director (Regulatory
Enforcement), Bureau of Alcohol, Tobacco and Firearms, 1200
Pennsylvania Avenue, NW, Washington, DC 20226
Rex D. Davis