No. 40980 (5-year Review): Rule R865-20T. Tobacco Tax

DAR File No.: 40980
Filed: 11/10/2016 10:10:47 AM

NOTICE OF REVIEW AND STATEMENT OF CONTINUATION

Concise explanation of the particular statutory provisions under which the rule is enacted and how these provisions authorize or require the rule:

Section 59-14-102 defines terms for purposes of cigarette and tobacco tax and licensing. Section 59-14-201 provides that it is unlawful to manufacture, import, or sell cigarettes without a license; and requires a bond for all licensees. Section 59-14-202 requires that cigarette licenses be issued only to a person owning or operating the place where cigarette vending machine sales are made; requires a separate license for each location sales are made; and provides instructions pertaining to license issuance. Section 59-14-204 imposes a cigarette tax, provides the rates of the tax imposed, and states that the tax shall be imposed upon the first purchase of cigarettes in the state. Section 59-14-205 provides that the cigarette tax shall be paid by affixing stamps on cigarettes, unless otherwise provided in rule by the Tax Commission; requires that all cigarettes sold in the state of Utah be stamped within 72 hours of their receipt in the state and prior to sale in Utah; and allows the Tax Commission to draft rules allowing cigarettes to remain unstamped in the hands of the wholesaler or distributor under certain conditions. Law also gives the Tax Commission authority to create rules aiding in the enforcement and collection of cigarette tax. Section 59-14-212 requires all manufacturers, distributors, or retailers that affix a stamp to imported cigarettes to provide certain information to the Tax Commission regarding those imported cigarettes; indicates that the required information shall be reported on a quarterly basis; and provides a penalty for failure to comply. Section 59-14-301 requires all manufacturers, distributors, and retailers of tobacco products to register with the Tax Commission and requires persons subject to this section to post a bond as a prerequisite to registering. Section 59-14-302 imposes a tax on the sale, use, or storage of tobacco products in Utah. The tax is imposed on the first purchase of the product in Utah. Section 59-14-401 allows a refund of cigarette tax on cigarettes and tobacco products sold outside of the state of Utah to a regular dealer in these articles. Section 59-14-404 gives Tax Commission authority to enter on the premises of a taxpayer to examine books and papers pertaining to the cigarette or tobacco products tax, or to secure any information directly or indirectly concerned with the enforcement of Chapter 14. Section 59-14-603 requires the commission to publish in its website a directory of cigarettes approved for stamping and sale in the state. Section 59-14-607 authorizes the Tax Commission to promulgate rules to enforce the Cigarette and Tobacco Tax and Licensing Act.

Summary of written comments received during and since the last five-year review of the rule from interested persons supporting or opposing the rule:

No written comments have been received.

Reasoned justification for continuation of the rule, including reasons why the agency disagrees with comments in opposition to the rule, if any:

Section R865-20T-1 clarifies that the cigarette tax and tobacco products tax are imposed upon the first purchase, use, storage, or consumption in the state; and clarifies that no tax is due from a nonresident or tourist who purchases cigarettes outside the state for use, storage, or consumption inside the state. Section R865-20T-3 states that each vending machine selling tobacco is to be licensed as a separate place of business. The license will be posted in a conspicuous place on the machine. Rule also provides guidelines for application for license and to change the place of business. Section R865-20T-5 states that sellers of tobacco products are not required to post bond if previous seller has paid the tax on the products; and indicates how the amount of the bond shall be calculated. Section R865-20T-7 clarifies that sales of cigarettes and tobacco products to vendors outside the state are not subject to this tax. This section also provides guidelines on records that must be maintained to evidence this exemption. Section R865-20T-8 requires manufacturers, jobbers, distributors, wholesalers, retailers, users, or consumers of tobacco products or cigarettes to keep records necessary to determine the amount of tax due on the sale and consumption of these products for a period of three years. Section R865-20T-9 allows inventories of cigarettes held by manufacturers to be delivered to wholesalers or jobbers without being stamped. Records of those deliveries must be kept with information provided in the rule and made available to the Tax Commission. Section R865-20T-11 allows manufacturers, distributors, wholesalers, and retailers that are required to provide on a quarterly basis a copy of the importer's federal import permit and customs form, to exclude those items from enclosure with their quarterly report so long as that information is kept in their records, and provided to the Tax Commission upon request. Section R865-20T-12 defines a "counterfeit stamp" for purposes of the definition of a "counterfeit cigarette". Section R865-20T-13 indicates how the moisture content of a tobacco product shall be measured and how the tax on moist snuff shall be calculated. Section R865-20T-14 indicates how the directory of cigarettes approved for stamping and sale in the state shall be updated. Therefore, this rule should be continued.

The full text of this rule may be inspected, during regular business hours, at the Office of Administrative Rules, or at:

Tax Commission
Auditing
210 N 1950 W
SALT LAKE CITY, UT 84134

Direct questions regarding this rule to:

• Christa Johnson at the above address, by phone at 801-297-3901, by FAX at 801-297-3907, or by Internet E-mail at [e-mail]

Effective:

11/10/2016

Authorized by:

Rebecca Rockwell, Commissioner

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