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Electronic Code of Federal Regulations

e-CFR data is current as of February 20, 2020

Title 27Chapter ISubchapter BPart 40 → Subpart C


Title 27: Alcohol, Tobacco Products and Firearms
PART 40—MANUFACTURE OF TOBACCO PRODUCTS, CIGARETTE PAPERS AND TUBES, AND PROCESSED TOBACCO


Subpart C—Taxes


Contents
§40.21   Cigar tax rates.
§40.22   Determination of sale price of large cigars.
§40.23   Cigarette tax rates.
§40.24   Classification of cigarettes.
§40.25   Smokeless tobacco tax rates.
§40.25a   Pipe tobacco and roll-your-own tobacco tax rates and classification.
§40.26   Persons liable for tax.
§40.27   Assessment.

§40.21   Cigar tax rates.

(a) Cigars are taxed at the following rates under 26 U.S.C. 5701(a):

Type and amountTax rate for removals during the following periods:
2002 to
March 31, 2009
April 1, 2009 and after
Small cigars per thousand$1.828$50.33
Large cigars*
  percentage of sale price20.719%52.750%
  but not to exceed—$48.75 per thousand$0.4026 per cigar.

*For large cigars: Until March 31, 2009, the percentage tax rate applies when the sale price is $235.294 per thousand or less, and the flat tax rate applies when the sale price is more than $235.294 per thousand. On and after April 1, 2009, the percentage tax rate applies when the sale price is $763.222 or less per thousand cigars, and the flat tax rate applies when the sale price is more than $763.222 per thousand cigars.

(b) See §40.22 of this part for rules concerning determination of sale price of large cigars.

(c) Cigars not exempt from tax under 26 U.S.C. chapter 52 and the provisions of this part which are removed but not intended for sale shall be taxed at the same rate as similar cigars removed for sale.

[T.D. ATF-420, 64 FR 71939, Dec. 22, 1999, as amended by T.D. TTB-75, 74 FR 14481, Mar. 31, 2009]

§40.22   Determination of sale price of large cigars.

(a) General rule. The tax imposed on large cigars is computed based on the sale price (the price for which the large cigars are sold by the manufacturer). In addition to money, goods or services exchanged for cigars may be considered as part of the sale price.

(b) Special cases—(1) In general. If there is any question concerning the applicable sale price for tax purposes, the appropriate TTB officer will determine such price, applying rules similar to the constructive sale price rules in 26 U.S.C. 4216(b) and the implementing regulations in 26 CFR 48.4216(b)-1 through 48.4216(b)-4. These constructive sale price rules apply to cigars sold by a manufacturer at retail, sold on consignment, or sold (otherwise than through an arm's length transaction) at less than the fair market price. Sales of cigars between affiliated corporations may be analyzed under the constructive sale price rules. The appropriate TTB officer may make this analysis on his or her own initiative or upon the written request of a manufacturer. If TTB decides it is necessary, we will publish constructive sale price determinations in the TTB Bulletin in accordance with §70.701(d) of this chapter.

(2) Adjustments in sale price—(i) Reasons for adjustment. Adjustments to the sale price may occur as a result of a discount or price increase by the manufacturer or as a result of a TTB determination pursuant to paragraph (b)(1) above. In either case, the manufacturer must make conforming changes to the tax that was computed on the sale price before the adjustment.

(ii) Time of adjustment. If an adjustment is made before the end of the same tax return period as the original determination of the tax, the adjustment may be made on the same return. If the price is increased or decreased retroactively (during a later return period), either by the manufacturer or by TTB's determination, the manufacturer must make an adjustment on the tax return for the current return period in which the price change was determined.

(iii) Amount of adjustment. The taxpayer must compute the adjustment to the tax as the difference between the tax that was paid and the tax that should have been paid, based on the newly determined sale price, together with interest thereon and any applicable penalties. The interest must be computed from the time of payment of the original tax until the time the adjustment was made. Upon request, the appropriate TTB officer will provide information regarding interest rates applicable to specific time periods and any applicable penalties.

(3) Pricing for different packaging. If different bona fide sale prices are applicable to different types of packaging (e. g., boxes of 25 and boxes of 50), then the cigars in each type of packaging are taxed on the basis of their respective sale prices.

(4) Pricing of seconds. If some of an otherwise identical cigar brand and size:

(i) Are distinctive from other such cigars because of physical imperfections, (ii) Are offered to the consumer through clear labeling as “imperfects”, “seconds”, “throw-outs”, or a comparable commonly understood term, and

(iii) The manufacturer has a separate sale price for such cigars, then they are taxed on the basis of this separate sale price.

(5) Combination packages. If a manufacturer has a sale price for a combination package containing cigars of different sizes, the cigars are taxed based on that combination sale price. If there is no sale price for the combination, then the cigars are taxed based on their individual sale prices.

(6) Removals for another person. If a manufacturer makes taxable removals of a brand and size of cigar only for distribution by others who establish the sale price, the tax is based on such sale price even though the manufacturer who makes the removals does not establish the price.

[T.D. ATF-420, 64 FR 71939, Dec. 22, 1999, as amended by T.D. TTB-91, 76 FR 5479, Feb. 1, 2011]

§40.23   Cigarette tax rates.

Cigarettes are taxed at the following rates under 26 U.S.C. 5701(b):

ProductTax rate per thousand for removals during the following periods:
2002 to
March 31, 2009
April 1, 2009 and after
Small cigarettes$19.50$50.33
Large cigarettes up to 612 long$40.95$105.69
Large cigarettes over 612 longTaxed at the rate for small cigarettes, counting each 234 or fraction thereof of the length of each as one cigarette.

[T.D. TTB-75, 74 FR 14482, Mar. 31, 2009]

§40.24   Classification of cigarettes.

For tax purposes, small cigarettes are designated Class A and large cigarettes are designated Class B.

(72 Stat. 1414; 26 U.S.C. 5701)

§40.25   Smokeless tobacco tax rates.

Smokeless tobacco products are taxed at the following rates under 26 U.S.C. 5701(e):

ProductTax rate per pound* for removals during the following periods:
2002 to
March 31, 2009
April 1, 2009 and after
Snuff$ 0.585$ 1.51
Chewing tobacco$ 0.195$ 0.5033

*Prorate tax for fractions of a pound.

[T.D. TTB-75, 74 FR 14482, Mar. 31, 2009]

§40.25a   Pipe tobacco and roll-your-own tobacco tax rates and classification.

(a) Tax rates. Pipe tobacco and roll-your-own tobacco are taxed at the following rates under 26 U.S.C. 5701(f) and (g), respectively:

ProductTax rate per pound* for removals during the following periods:
2002 to
March 31, 2009
April 1, 2009 and after
Pipe tobacco$ 1.0969$ 2.8311
Roll-your-own tobacco$ 1.0969$ 24.78

*Prorate tax for fractions of a pound.

(b) Classification. (1) Pipe tobacco and roll-your-own tobacco, before removal subject to tax, must be put up in packages that conform to the requirements of §§40.211 and 40.212, and of §40.216a or §40.216b as appropriate.

(2) Any tobacco that has been processed and that is removed in a package, as that term is defined in §40.11, that does not bear the notice for smokeless tobacco prescribed in §40.216 or the notice for pipe tobacco prescribed in §40.216a is deemed to be roll-your-own tobacco and subject to tax at the rate applicable to roll-your-own tobacco. A container of processed tobacco, the contents of which weigh 10 pounds or less (including any added non-tobacco ingredients or constituents), that is removed within the meaning of this part for any purpose other than destruction, export, delivery as a sample to a manufacturer of processed tobacco or tobacco products for the purpose of soliciting orders of processed tobacco, or scientific testing or testing of equipment which results in the destruction of the processed tobacco or the return of the processed tobacco to the factory premises, is deemed to be a package offered for sale or delivery to the ultimate consumer.

(3) Subject to paragraph (b)(4) of this section, any tobacco that has been processed and that is removed in a package, as that term is defined in §40.11, is deemed to be roll-your-own tobacco and subject to tax at the rate applicable to roll-your-own tobacco, even though the package bears the notice required for pipe tobacco under §40.216a, if:

(i) The package does not bear the declaration “pipe tobacco” in direct conjunction with, parallel to, and in substantially the same conspicuousness of type and background as the brand name each time the brand name appears on the package; or

(ii) The package or accompanying materials bear any representation that would suggest a use other than as pipe tobacco. (26 U.S.C. 5702 and 5723) The term 'accompanying materials' includes, but is not limited to, any point of sale advertising or other printed product communications issued by the manufacturer or importer of pipe tobacco products. In addition, the inclusion of cigarette papers or tubes in a package bearing a 'pipe tobacco' declaration will suggest a use other than pipe tobacco.

(4) During the period from June 22, 2009, through March 23, 2010, manufacturers may continue to remove products as pipe tobacco in packages that do not bear the declaration “pipe tobacco” in the manner prescribed in paragraph (b)(3)(i) of this section.

[T.D. TTB-75, 74 FR 14482, Mar. 31, 2009, as amended by T.D. TTB-78, 74 FR 29408, June 22, 2009; T.D. TTB-81, 74 FR 48653, Sept. 24, 2009; T.D. TTB-104, 77 FR 37302, June 21, 2012]

§40.26   Persons liable for tax.

The manufacturer of tobacco products shall be liable for the taxes imposed on tobacco products by 26 U.S.C. 5701: Provided, That when tobacco products are transferred in bond pursuant to 26 U.S.C. 5704, to the bonded premises of another such manufacturer or an export warehouse proprietor, the transferee shall become liable for the tax upon receipt by him of such products and the transferor shall thereupon be relieved of his liability for the tax. When tobacco products are released in bond from customs custody for transfer to the bonded premises of a manufacturer of tobacco products, the transferee shall become liable for the tax on such products upon release from customs custody. Any person who possesses tobacco products in violation of 26 U.S.C. 5751(a)(1) or (2), shall be liable for a tax equal to the tax on such products.

(Sec. 201, Pub. L. 85-859, 72 Stat 1415, as amended, 1424, as amended (26 U.S.C. 5703, 5751))

[T.D. 6871, 31 FR 32, Jan. 4, 1966. Redesignated at 40 FR 16835, Apr. 15, 1975, and amended by T.D. ATF-48, 44 FR 55854, Sept. 28, 1979; T.D. ATF-232, 51 FR 28080, Aug. 5, 1986; T.D. ATF-243, 52 FR 43194, Dec. 1, 1986]

§40.27   Assessment.

Whenever any person required by law to pay tax on tobacco products fails to pay such tax, the tax shall be ascertained and assessed against such person, subject to the limitations prescribed in 26 U.S.C. 6501. The tax so assessed shall be in addition to the penalties imposed by law for failure to pay such tax when required. Except in cases where delay may jeopardize collection of the tax, or where the amount is nominal or the result of an evident mathematical error, no such assessment shall be made until and after notice has been afforded such person to show cause against assessment. The person will be allowed 45 days from the date of such notice to show cause, in writing, against such assessment.

(Sec. 201, Pub. L. 85-859, 72 Stat. 1415, as amended (26 U.S.C. 5703))

[T.D. 6871, 31 FR 32, Jan. 4, 1966. Redesignated at 40 FR 16835, Apr. 15, 1975, and amended by T.D. ATF-48, 44 FR 55854, Sept. 28, 1979; T.D. ATF-232, 51 FR 28080, Aug. 5, 1986; T.D. ATF-243, 52 FR 43194, Dec. 1, 1986]

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