FAQS: CIGARETTE AND TOBACCO TAX
|General Tax Questions||For Retailers||For Consumers||Enforcement|
General Tax Questions:
Q. What is Delaware's cigarette tax rate?
A. Effective August 1, 2009, the cigarette tax rate was raised to $1.60 for a standard pack of 20 cigarettes. ($.08 per stick) This tax is paid by the cigarette wholesalers (affixing agents) and passed on to the consumer.
For the period August 1, 2007 to August 1, 2009, the tax rate on cigarettes was $1.15 per pack of 20 cigarettes.
Q. Who pays the cigarette tax?
A. The cigarette tax is paid by cigarette wholesalers (affixing agents) who are required to purchase tax stamps from the Division of Revenue, which they then apply to each pack of cigarettes. Cigarettes brought into Delaware that are not stamped with a Delaware cigarette tax stamp or stamped with another state's tax stamp are untaxed and deemed contraband.
Q. What is Delaware's 'Other Tobacco Products' tax rate?
A. The other tobacco products tax rate is 15% of the wholesale purchase price of the tobacco. These products include cigars, snuff, chewing tobacco, etc. and do not bear a Delaware tax stamp. The one exception to the 'Other Tobacco Products' tax rate is moist snuff, which effective January 1, 2008 is taxed at a rate of $0.54 per ounce.
Q. Who pays the 'Other Tobacco Products' tax?
A. The 'Other Tobacco Products' tax is not directly paid by the consumer. Instead, this tax is paid by the person (typically a wholesaler) who brings into Delaware, or causes to be brought into Delaware, tobacco products (excluding cigarettes) for the purpose of sale. In addition, any person who makes or manufactures tobacco products in Delaware for sale in the state must also pay this tax.
Q. What are cigarette tax stamps?
A. Cigarette tax stamps are heat applied decals affixed to every pack of cigarettes sold in Delaware, proving that the cigarette tax was paid. Delaware cigarette tax stamps come in different size rolls and sheet configurations and are only sold by the Division of Revenue to authorized wholesalers (affixing agents).
Each state uses its own tax stamp design, including colors and markings.
Affixing agents receive a 0.3% tax discount when purchasing stamps to help offset the costs they incur when applying the stamps to the packs of cigarettes.
Q. Are there any exemptions in Delaware from the cigarette and tobacco products tax?
A. Yes. The exemptions are as follows:
- Sales to Veterans' Hospitals - Sales to state or federally operated veterans' hospitals are exempt if the tobacco products are being purchased by the organization for gratuitous issue to patients. Also, sales to patients in Veteran's hospitals by retail dealers located in such hospitals are exempt from tax. [30 Del.C., Sec. 5305(d)]
- Sales to Military Cigarettes acquired by a military exchange or commissary (e.g., Dover Air Force Base) are exempt from tax if the cigarettes are sold to and for the sole use of authorized personnel. However, if a member of the Armed Forces presents a valid military I.D. card to purchase cigarettes from a nonmilitary vendor, sales to that member are not exempt from tax. [30 Del.C., Sec. 5305(c)]
- Sales to Native Americans Cigarettes acquired by a Native American operating a cigarette business within an Native American reservation are exempt from tax if the cigarettes are sold to and for the sole use of members of the reservation.
Q. Who may receive a refund of cigarette tax paid?
A. A cigarette wholesaler (affixing agent) may receive a refund of the tax paid for Delaware stamps affixed to packs of cigarettes that are (1) sold and shipped into another state for sale; (2) have been returned to the manufacturer for credit because they became unfit for use and consumption; or (3) became unsalable by reason of fire, flood or other causes beyond the control of the affixing agent. [30 Del.C., Sec. 5326]
An affixing agent going out of business or selling their business may also receive a refund of the tax paid for Delaware stamps not affixed to packs of cigarettes.
Q. What is a Floor Tax?
A. A floor tax, a/k/a floor stocks tax, is a one-time excise tax placed on a commodity (i.e., cigarettes) undergoing a tax increase. The amount of the floor tax is equal to the difference between the new tax rate and the immediately prior tax rate. In other words, on the date of the effective tax increase, any wholesaler (affixing agent) who holds stamped cigarettes for resale on which the cigarette tax was paid at the prior rate and/or any wholesaler (affixing agent) who holds unaffixed tax stamps is subject to a floor tax. In Delaware, retail dealers are not subject to a floor tax.
Q. Who is required to obtain a Delaware business license as a seller of tobacco products?
A. Any business that sells cigarettes at wholesale and/or retail in Delaware must have a wholesale and/or retail business license. In addition, businesses may need to obtain additional licenses depending on the business type and what tobacco products are being sold. For more information and fees, visit the Cigarette and Other Tobacco Products tax tip.
To obtain a Delaware business license, visit One Stop Business License and Registration.
Q. What requirements must a retailer meet to sell cigarettes to consumers in the State of Delaware?
A. A retailer must meet the following requirements for all cigarettes sold to Delaware consumers:
- The proper Delaware tax stamp must be affixed to each pack of cigarettes for sale.
- The retailer must hold a valid license to sell cigarettes to consumers in Delaware.
- The retailer must maintain proper invoices or other supporting records from the wholesaler.
Q. Are RYO Cigarette-making Machines permitted to operate in retail establishments in the State of Delaware?
A. The federal transportation bill signed by President Obama on July 6, 2012, included a provision to regulate roll-your-own cigarette businesses as "tobacco product manufacturers." The legislation requires RYO cigarette businesses to apply for and obtain a federal permit from the Tobacco Tax & Trade Bureau (TTB). Once the proper permit have been obtained, these businesses must also obtain approval from the Division of Revenue as an authorized stamp affixing agent and ensure that all cigarette packages the customer purchases are affixed with the appropriate Delaware cigarette tax stamp. In addition, these businesses must meet various other requirements regarding fire safety, health warnings, packaging and labeling, etc.
Q. What are the penalties for failure to obtain a cigarette or tobacco products license?
A. Penalties for failure to obtain a license include a fine of not more than $1,000 or imprisonment for not more than 90 days, or both.
Q. Will the State of Delaware suspend or revoke the business license of a tobacco retailer?
A. After a hearing before the Secretary of Finance, the Division of Revenue may suspend or revoke any business license issued pursuant to Title 30, Chapter 53, if it finds that the licensee has failed to comply with any of the provisions of Chapter 53.
Q. As a licensed cigarette dealer, may I distribute sample packs of cigarettes?
A. Yes. Any licensed retail dealer may receive and make free distribution of sample packs of cigarettes without affixing Delaware tax stamps, so long as the proper tax has been paid. (30 Del.C., Sec. 5324)
Q. As a licensed cigarette retailer, may I sell single cigarettes?
A. No. Since the tax stamp is not affixed to individual sticks of cigarettes, there would be no evidence of tax payment.
Q. Is there a minimum selling price for cigarettes in Delaware?
A. Pursuant to Title 6, Chapter 26, Delaware has a minimum price law requiring cigarettes be sold at or above a minimum price for wholesale purposes only. The retail price of cigarettes is not affected by this statute.
The Division of Revenue sets the price for cigarette sales at wholesale. Only a manufacturer-sponsored promotion can lower the price of cigarettes below the 'minimum price.'
Q. Can I buy my cigarettes in another state and bring them into Delaware?
A. Delaware law allows you to bring up to 9 packs of cigarettes into the state without requiring them to be taxed by Delaware. However, Delaware will tax all cigarettes you bring into the state if you bring more than 9 packs. For example, if you bring 2 full cartons (20 packs) into Delaware, you would need to pay the tax on all 20 packs to the Division of Revenue.
Q. Is it legal to buy cigarettes over the Internet?
A. Yes. It is legal to purchase cigarettes over the Internet; however, cigarettes bought over the Internet, over the telephone or from mail-order catalogs generally don't have Delaware tax stamps on the bottom of the packages and thus are considered contraband and may be seized. The consumer is ultimately responsible for paying the Delaware cigarette tax.
Q. If I purchased unstamped cigarettes over the Internet, by telephone or by mail-order, am I required to pay any tax?
A. Delaware law requires any person in possession of unstamped cigarettes which are subject to tax to pay all applicable tax to the Division of Revenue. The cigarette tax is due regardless of what the Internet or mail-order dealer informs you.
Q. What happens if I have contraband cigarettes?
A. The State of Delaware has the authority to seize contraband cigarettes. Individuals may possess up to 9 packs of unstamped cigarettes in the State of Delaware. However, if you possess more than 9 packs of unstamped cigarettes, in addition to the cigarettes being confiscated, you are subject to a fine up to $1,000 and up to 90 days in jail.
Q. What is the penalty for failure to pay the cigarette tax due?
A. If an individual purchases unstamped cigarettes for himself or herself and fails to pay the required tax, that person is guilty of a misdemeanor and may be fined not more than $1,000 and/or imprisoned not more than 90 days, or both.
Q. How will the state know if I purchase cigarettes over the Internet, over the telephone or through the mail?
A. Federal law requires Internet and/or mail order businesses that sell cigarettes to consumers to report those interstate sales to state revenue authorities. (i.e., the Jenkins Act) Therefore, the Division of Revenue does have the means to track mail order/Internet sales into the state.
Q. Which agencies regulate tobacco in Delaware?
A. The Division of Revenue investigates alleged violations of tobacco tax laws and also collects cigarette and tobacco taxes.
The Division of Alcohol and Tobacco Enforcement regulates cigarette sales to minors and sales of single cigarettes.
The Attorney General's Office ensures that tobacco manufacturers comply with Delaware's Master Settlement Agreement (MSA).
Q. What makes cigarettes subject to confiscation in the State of Delaware?
A. Untaxed cigarettes. (A Delaware tax stamp indicates that the correct cigarette tax was paid) Counterfeit cigarettes and/or counterfeit tax stamps. "For Export Only", "U.S. Tax Exempt", "For Use Outside the U.S.", or similar wording on cigarette packs.
Q. What is the process for confiscating cigarettes from a retail store?
A. Any package of cigarettes may be confiscated if found without an approved Delaware tax stamp. (30 Del.C., Sec. 5354)
Within 5 days of the seizure, a retailer will receive a statement of the inventory seized and the state will hold the cigarettes in custody pending a decision of the court.
In the event of a conviction for possessing untaxed cigarettes, the cigarettes will be automatically forfeited to the state and subsequently destroyed. (30 Del.C., Sec. 5351)
Q. What are some examples of cigarette tax evasion?
A. Examples of cigarette tax evasion:
- Purchases of cigarettes by individuals over the Internet, telephone or mail without a genuine Delaware tax stamp.
- Purchases of cigarettes from lower-tax jurisdictions or from Native American reservations without a genuine Delaware tax stamp.
- Counterfeit cigarette tax stamps and/or counterfeit cigarette packs.
- Purchases by criminal enterprises of large quantities of cigarettes from low-tax jurisdictions then diverting the cigarettes to high-tax jurisdictions for sale to retailers.
Q. What are the penalties for cigarette tax evasion?
A. Felony charges:
- Willfully evading payment of cigarette tax up to 5 years in jail and/or court-ordered fines. (Sec. 571)
- Sale of unstamped cigarettes up to 1 year in jail and/or $1,000 fine. (Sec. 5341)
- Possession of unstamped cigarettes up to 90 days in jail and/or $1,000 fine. (Sec. 5342)
- Refusal to permit inspection of cigarettes up to 1 year in jail and/or $1,000 fine. (Sec. 5341)
- Possession of counterfeit tax stamps up to 1 year in jail and/or $1,000 fine. (Sec. 5341)
- Cigarettes sold or offered for sale without a valid license up to 90 days in jail and/or $1,000 fine. (Sec. 5307)
Q. Is my cigarette inventory subject to inspection during normal business hours?
A. Division of Revenue agents may examine your cigarette inventory at any time during regular business hours. This examination may include the physical testing of the packaging as well as the physical testing of the Delaware tax stamps by chemical means. If you are in possession of any packages of cigarettes that you are prohibited from selling, revenue agents may seize those cigarettes as contraband without a warrant.
Q. What is the Contraband Cigarette Trafficking Act ("CCTA")?
A. CCTA makes it a 'felony' for any person knowingly to ship, possess, sell, distribute or purchase more than 50 cartons of contraband cigarettes.
Contraband cigarettes means a quantity in excess of 10,000 cigarettes (50 cartons), which bear no evidence of the payment of applicable state taxes in the state where such cigarettes are found.
Q. What is the Prevent All Cigarette Trafficking Act (PACT Act)?
A. The PACT Act, signed by President Obama on March 31, 2010, will help prevent tax evasion and help combat illegal Internet sales of cigarettes and smokeless tobacco products. (*excludes cigars and pipe tobacco)
Specifically, the PACT Act will provide the following:
- Prohibits the U.S. Postal Service from shipping cigarettes, RYO, and smokeless tobacco products, but does not prohibit shipping pipe tobacco and cigars.
- Requires Internet sellers and other remote sellers to pay all federal, state, local or Tribal tobacco taxes and to affix tax stamps before delivery to any customer. (as if they were located in the same state as their customers)
- Mandates that the age and identification of purchasers be checked at purchase and at delivery.
- Strengthens the Jenkins Act by making it a federal offense for any seller making a tobacco sale via telephone, mail order or the Internet to fail to comply with all state tax laws.
For more information on Cigarette Tax and/or Other Tobacco Products Tax, please contact David M. Smith at 302-577-8958 or email@example.com.