Congress Hikes Taxes for Tobacco Products - Floor Tax Provisions Apply to Products Held for Sale on April 1, 2009
On February 4, 2009, President Barack Obama signed into law a $32.8 billion expansion of the State Children's Health Insurance Program. The program is funded through an increase in the federal excise tax on cigarettes (from 39 cents to $1.0066 per pack), little cigars (from $1.828 per 1000 to $50.33 per 1000), snuff (from 58.5 cents per pound to $1.51 per pound), roll-your-own tobacco (from $1.0969 per pound to $24.78 per pound), as well as increases on taxes for large cigars, pipe tobacco, chewing tobacco, cigarette papers and cigarette tubes.
The legislation contains a provision imposing a floor stocks tax on all inventory held for sale on the effective date of the tax increase, which is April 1, 2009. The floor stocks tax applies to all tobacco products subject to the tax increase, except large cigars. The floor stocks tax applies to "any person" holding tobacco products for sale, thereby including both distributors and retailers. Tobacco merchants will be required to pay the floor stocks tax on or before August 1, 2009.
The legislation does not specify how the floor stocks tax will be implemented. Rather, the legislation authorizes the Treasury Department to enact regulations implementing the floor stocks tax.
Please contact a member of the Troutman Sanders Tobacco Team to discuss how the floor stocks tax may apply to your business.