Floor Stocks Tax Filings

By Evelyn Wilson (202) 927-3580
The Balanced Budget Act of 1997 (Public Law 105-33, Section 9302) imposed a floor stocks tax on cigarettes effective January 1, 2002, as a result of an increase in the Federal excise tax. The floor stocks tax is imposed on all Federally taxpaid or tax determined cigarettes held for sale on the effective date. The tax is the difference between the previous excise tax rate and the new tax rate. The new tax rate for small (Class A) cigarettes will increase $2.50 per thousand, or five cents for a pack of 20.

All tobacco product manufacturers, wholesalers, importers, retailers who sell cigarettes, must document (either by record or physical inventory) all taxpaid or tax determined cigarettes held for sale on January 1, 2002. An inventory of cigarettes labeled for export must be counted separately. Each taxpayer is allowed a tax credit of up to $500. However, if their tax liability is less than $500 they will not be required to file a tax return. All tax returns must be filed no later than April 1, 2002.

If you have any questions concerning cigarette floor stocks tax please call the Revenue Operations Branch at (202) 927-8200 or refer to the ATF web site at www.atf.treas.gov. q

Framework Convention on Tobacco Control

By Earnestine O'Pharrow (202) 927-3580
On November 21-28, 2001, in Geneva, Switzerland, the Bureau of Alcohol, Tobacco and Firearms was a participating member of the United States delegation to the Framework Convention on Tobacco Control (FCTC) that was negotiated by the World Health Organization (WHO). This convention marks the third meeting of approximately 161 countries combined to form the Intergovernmental Negotiating Body (INB3). The Bureau of Alcohol, Tobacco and Firearms' (ATF) participation was regarding the issues of tobacco smuggling, and licensing. Regarding tobacco smuggling, ATF presented to INB3, on behalf of the United States Government (USG), the proposal that there be a tobacco smuggling protocol to address specific technical issues to combat tobacco smuggling at local, national, regional and global levels. The protocol proposal would detail basic obligations of the countries that sign and ratify the convention and protocol. It would also detail international cooperation between parties, exchange of information and provision of technical support, national reports, research and development. In regards to licensing, ATF presented to INB3, the USG support of an establishment of a closed uniform distribution system for regulating interstate commerce in tobacco products. This would include the licensing of manufacturers, importers, exporters, and wholesalers, but not retailers. This issue of licensing would also be addressed in the context of a protocol on illicit trade, namely tobacco smuggling.

ATF also addressed the U.S. position on the destruction of contraband products, and the prohibition on tax-free and duty-free sales of tobacco products. The U.S. proposed that the requirement to destroy all contraband products exclude those products which are "contraband" only because they are not tax paid. On the other hand, the U.S. opposed the prohibition on tax-free and duty-free sales of tobacco products. The prohibition is believed to be too broad, since the U.S. prohibits the imposition of export taxes. Also, the evidence is inconclusive that such sales are a source of illicit trade. q