Rulings of the Tax Commissioner
Document Number: 07-11
Tax Type:Tax on Tobacco
Brief Description:Cigarette Tax Increased Compliance Efforts
Topics:Basis of Tax; Tobacco Products
Date Issued:03/15/2007
Tax Bulletin 08-13 supersedes Virginia Tax Bulletin 07-3,

TAX BULLETIN 07-3

Virginia Department of Taxation

March 15, 2007

CIGARETTE tax

INCREASED Compliance Efforts


The Department of Taxation (TAX) has increased its compliance efforts for the enforcement of the cigarette tax. The Virginia cigarette tax is imposed at the rate of 30 cents per pack of 20 cigarettes and the payment of the tax is evidenced by affixing a Virginia Cigarette Revenue Stamp. Stamping agents must affix the stamps within one business day of receipt of any unstamped cigarettes. Unless exempt by law, all packs of cigarettes must be stamped by a licensed stamping agent prior to shipping the product to wholesale or retail dealers in Virginia.

Stamping Exemptions

A stamping agent may sell cigarettes without the Virginia revenue stamp affixed if:

1. The cigarettes are sold to a cigarette dealer in another state;
2. The cigarettes are purchased exclusively for resale in the other state; and
3. The cigarettes sold into the other state are at the time of sale stamped with the other state’s cigarette stamp by the Virginia wholesale dealer. A stamping agent may also sell cigarettes without the Virginia revenue stamp affixed if: 1. The cigarettes are being sold to the United States or an instrumentality of the United States for purposes of resale to or for the use or consumption by members of the armed services;
2. The cigarettes are being sold to the Veterans Canteen Service of the Veterans Administration for resale to or for the use or consumption by veterans of the armed services who are hospitalized or domiciled in Veterans Administration homes and hospitals, or
3. The cigarettes are being sold and delivered to ships regularly engaged in foreign commerce or coastwise shipping between points in this Commonwealth and points outside of this Commonwealth for resale to or for use or consumption upon such ship or in foreign commerce.

Penalties Applicable to Licensed Stamping Agents

Any stamping agent who fails to properly affix the required stamps to any cigarettes is subject to a penalty of $250 per pack if the amount of unstamped cigarettes is 100 packs or less. If the amount of unstamped cigarettes exceeds 100 packs the stamping agent is subject to a penalty of $500 per pack. Where willful intent to defraud the Commonwealth of the cigarette tax is found, the stamping agent is subject to a penalty of $2,500 per pack. If a stamping agent has an amount of unstamped cigarettes (i) more than 30 packs or 5% of the cigarettes in their place of business, whichever is greater, or (ii) more than 500 packs, such possession shall be prima facie evidence of intent to defraud. Code of Va. 58.1-1013. In addition, the stamping agent is liable for the cigarette excise tax on all unstamped cigarettes.

Penalties Applicable to Persons Other than Stamping Agents

Any person who is not a stamping agent who sells, purchases, transports, receives or possesses less than 3,000 packs of unstamped cigarettes for the purpose of evading taxes is subject to a penalty not to exceed $500 per pack. Any person who is not a stamping agent who sells, purchases, transports, receives or possesses 3,000 packs or more of unstamped cigarettes for the purpose of evading taxes is subject to a penalty not to exceed $2,500 per pack. If a person who (i) has not been issued a permit to affix revenue stamps by TAX or (ii) is not a retail dealer who has lawfully purchased cigarettes from such permit holder has in his possession within the Commonwealth more than 30 packs of unstamped cigarettes, such possession is presumed to be for the purpose of evading taxes. Code of Va. 58.1-1017. Any person subject to the penalty imposed by this section is also liable for the cigarette excise tax on all unstamped cigarettes.

Cigarette retailers and wholesalers who are not stamping agents must carefully inspect every pack of cigarettes at the time of delivery or receipt to ensure that every pack of cigarettes has been stamped with the Virginia Revenue stamp. In the event that unstamped cigarettes are discovered, the dealer should immediately segregate the unstamped cigarettes and post a notice on the cigarettes stating that they are unstamped and not for resale. Additionally, the dealer should immediately telephone or e-mail its supplier to notify the supplier of the situation and arrange for the return of the unstamped cigarettes to the supplier. Stamping agents and dealers are strongly encouraged to revisit their quality control procedures so that unstamped cigarettes are neither shipped nor received into inventory.

TAX has created a system of graduated penalties for use in situations where the amount of unstamped cigarettes held by a retailer or wholesaler who is not a stamping agent is less than 3,000 packs. While penalties will be imposed in most instances as listed in the following chart, TAX reserves the right to depart from the penalties listed below when the circumstances require.


CIGARETTE TAX PENALTY ASSESSMENTS

# PACKS
FIRST TIME
PENALTY PER PACK
SUBSEQUENT
PENALTY PER PACK
1-30
Warning Letter
Warning Letter
31-50
$50
$100
51-100
$100
$250
>100
$250
$500


The monetary penalties listed above apply to every unstamped pack of cigarettes held by a retailer or wholesaler who is not a stamping agent, not just the number of packs of unstamped cigarettes in excess of 30 packs. A retail dealer can avoid the penalties listed above by proving to TAX that the unstamped cigarettes were lawfully purchased from a licensed Virginia Stamping Agent. In order to prove that the cigarettes were purchased lawfully, the retailer must provide a copy of the invoice from the stamping agent and physical proof that the unstamped cigarettes were purchased from that stamping agent.

The following are examples of physical proof:

1. A signed affidavit from the stamping agent stating the stamping agent sold the unstamped product in question to the retailer;

2. Distinctive numbering, lettering, marking, labeling, bar codes or other features reflecting that the cigarettes were sold by the stamping agent; or

3. Physical observation by a TAX auditor that:

a. The unstamped cigarettes are segregated from other inventory;
b. The unstamped cigarettes are clearly posted as being unstamped and not for sale; and
c. The dealer is able to document that the stamping agent has been contacted by the dealer concerning the unstamped packs no more than 15 days prior to the date of physical inspection by the auditor.

Appeal Rights and Process for Appeal

Any person assessed with the cigarette tax and penalties may apply for relief to the Tax Commissioner by filing a complete appeal within ninety days from the date of the assessment. Such application shall be in the form prescribed by TAX for appeals and fully set forth the grounds upon which the taxpayer relies and all facts relevant to the taxpayer's contention. TAX may also require such additional information, testimony or documentary evidence as is deemed necessary to a fair determination of the application. On receipt of a notice of intent to file an appeal, TAX shall refrain from collecting the tax until the time for filing has expired, unless the Tax Commissioner determines that collection is in jeopardy. Code of Va. 58.1-1821. A notice of intent to file an appeal does not satisfy or extend the ninety-day limitations period for filing a complete appeal.

If you have any questions please contact the Tobacco Tax Unit at (804) 371-0730.


Tax Bulletin 08-13 supersedes Virginia Tax Bulletin 07-3,



Related Policy Documents:

VTB 08-13