Tobacco Tax Refund Won for Distributor Against the Connecticut Department of Revenue
Our team recently received notice from the Connecticut Department of Revenue Services on successfully obtaining a tobacco tax refund for one of our clients. The refund was for payments of tobacco products tax on nontaxable amounts, specifically amounts paid for federal excise tax (FET). The outcome serves as an important reminder for distributors that pay state-level tobacco products tax to periodically review their reporting with a professional for potential refund opportunities. Below, we explain some of the most common opportunities, both in Connecticut and in other states.
Why FET Does Not Apply to Connecticut’s Tobacco Products Tax
When distributors bring tobacco products into a state for the purpose of making a first sale, they are generally responsible for reporting and paying tobacco products tax to the applicable governing body. Usually, this is the state’s department of revenue or tax agency. Most states impose the tobacco products tax on the “wholesale purchase price”, an often vaguely defined term when placed against the backdrop of ancillary charges shown on a standard invoice from your supplier. For example, charges to reimburse for federal excise tax, shipping and freight, or other costs separate from the price of the tobacco.
In Connecticut, the tobacco products tax law defines the wholesale purchase price as “…the price at which the distributor purchased such products…” See Conn. Gen. Stat. § 12-330a(6). Without specific mention of FET, taxpayers were left with little guidance about what charges to include or exclude in the proper calculation of Connecticut’s tobacco product tax. After careful analysis, the Connecticut Department of Revenue’s Appellate Division, in its Final Determination Letter, made it clear that the law was not meant to include payments made for FET. Essential to the state’s decision was the fact that other tax statutes make an explicit reference to the inclusion of federal taxes in the purchase price, such as the state’s sales tax. Without similar reference in the tobacco product tax, it was clear the state legislature did not intend to tax payments made to cover FET.
Similar Tobacco Products Tax Refunds and Savings Opportunities in Other States
Opportunities for tax refunds are not limited to Connecticut or for separately stated costs of FET on a distributor’s invoice. Central to a taxpayer’s ability to seek a tobacco tax refund is the state’s laws, regulations, and other policies on two key issues:
1. The nature of the tobacco products you sell compared with what is subject to tax under the state’s law.
2. The price or amount subject to tax based on how the state’s laws determine the proper basis for calculating tax (i.e., what is the wholesale purchase price?)
As the tobacco industry evolves, tax refund opportunities and issues will continue to occur with changes in the products, methods of operation, and applicable tax laws. All contribute to the creation of potential cost savings for multi-state distributors and businesses across the country. Examples of items that could create controversy over application of tobacco product taxes, include the following:
- Ancillary costs associated with the tobacco product’s wholesale purchase price (e.g., delivery, packaging FET, discounts, etc.).
- Novel tobacco products (e.g., blunt wraps, cigar wrappers, etc.).
- Other market developments such as the sale of vape, e-cigarettes, and other electronic nicotine delivery systems (ENDS).
If you have questions about tobacco products tax compliance or refund opportunities, schedule your free consultation with our professionals today. Our mission is simple: to fight for your business’s bottom line through the proper assessment and payment of tobacco taxes. Only pay what you owe.