Excise and Use Taxes (Article 20)
Cigarette Excise Taxes
New York State imposes a $4.35 tax on a package of cigarettes, plus $0.68 per additional five cigarettes contained in that cigarette pack. A tax stamp must also be affixed to the front of every pack of cigarettes sold in the state.
Exceptions: Members of the U.S. armed forces may purchase cigarettes in New York tax-free. If the purchaser of cigarettes falls within the qualified Indian nation or tribe exception, he or she may purchase cigarettes tax-free on that nation’s property.
A qualified Indian nation or tribe falling under the tax exemption must use one of two methods to determine the amount of tax-free cigarettes it qualifies for. The two systems, prior approval system and probable demand system, are calculations established by the tax commission to allocate tax-free cigarettes to the nation or tribe based on numerous factors and only apply to the nation or tribe’s personal consumption. Prior approval system is detailed under § 471; the probable demand system is detailed under § 471-e.
Cigarette Use Tax
New York State imposes a use tax on cigarette purchases made by any individual outside of the state but consumed in the state. The use tax rate is equivalent to the cigarette sales tax ($4.35 per package plus $0.68 per additional five cigarettes contained in the package). However, a use tax is not imposed if it meets one of three exceptions: 1) the cigarette tax imposed under § 471 has already been paid; 2) the cigarettes are exempt from taxation under New York State tax law; or 3) the person brought into the state four hundred cigarettes or less. Otherwise, the individual must file a tax return with the tax commission and remit payment within 24 hours from the time the tax obligation is due.
New York State imposes a tax on all other tobacco products other than cigarettes, snuff (finely cut, ground, or powdered tobacco not intended for smoking), and little cigars (unlike cigarettes, which are wrapped in paper, little cigars are wrapped either wholly or partially in a tobacco-containing substance). These tobacco products are taxed at the rate of 75% of the wholesale price.
Snuff is taxed at $2 per ounce plus any fraction thereof if the weight of snuff is less than a full ounce. Little cigars are taxed at the same rate as cigarettes ($4.35 per package of little cigars plus $0.68 per additional five little cigars contained in that pack).
New York State imposes a use tax on all other tobacco product purchases, other than cigarettes, made by any individual outside of the state but consumed in the state. The use tax rate is equivalent to the sales tax for tobacco products other than cigarettes (75% of the wholesale price).
New York State imposes a use tax on snuff products of $2 per ounce, plus any fraction thereof if the snuff’s weight is less than a full ounce. The use tax on little cigars is equivalent to the cigarette sales tax ($4.35 per package of little cigars plus $0.68 per additional five little cigars contained in the package).
Tobacco distributors and wholesalers, who are already under the state’s licensing scheme to lawfully purchase and sell tobacco, are covered in other sections of the New York Tax Law. Therefore, this section applies to persons who would otherwise bypass the requisite state tax by purchasing cigarettes or tobacco products outside of New York State and selling them in-state.
Persons who receive or purchase tobacco products outside of New York State and thereafter sell them in-state for profit are liable for taxes pursuant to Article 20, Tax on Cigarettes and Tobacco Products. They will also be responsible for reporting and submitting the tax obligation as any in-state tobacco distributor or wholesaler would.
Qualified Indians may purchase tax-free cigarettes on qualified reservation property of their nation or tribe (lands held by an Indian nation or tribe that is located within the reservation of that nation or tribe in the state) for their own personal consumption. A qualified Indian is any person duly enrolled on the tribal rolls of one of New York’s Indian nations or tribes.
Since cigarettes purchased by qualified Indian nations or tribes are for personal consumption only, a tax is due as against Indian nations or tribes if the cigarettes are sold to:
- Qualified Indians purchasing cigarettes off their reservations;
- Qualified Indians purchasing cigarettes on another nation or tribe’s reservations; or
- Non-Indians making cigarette purchases on Indian reservations.
Under the exemption, the recognized governing body of an Indian nation or tribe may present coupons to licensed cigarette dealers to purchase tax-exempt cigarettes. Coupons are distributed quarterly to tribal members or tribal member cigarette sellers. Only Indian nations or tribes may redeem the coupons for tax-free cigarettes.
The distribution of coupons to qualified Indian nations or tribes is based on a probable demand calculation (the national average of cigarettes consumed per capita multiplied by the number of qualified Indians for each qualified nation or tribe). The probable demand calculation is also used to determine the amount of tax-free cigarettes to be allocated to qualified Indian nations or tribes that elected not to participate in the coupon system but instead use the prior approval system.
Tax agreements made between the Indian nation or tribe and the state take precedence over the provisions of the New York Tax Law.
A wholesale dealer is a person or organization in the business of selling cigarettes or tobacco products to others in the business of selling cigarettes or tobacco products at the retail level. A wholesale dealer must have a license granted by the New York State tax commission to conduct such wholesale cigarettes or tobacco products business. The license is effective until revoked or suspended for cause or surrendered. It is not transferrable.
In order to obtain a wholesale license, the wholesale dealer must meet specific requirements, including obtaining a surety bond. Once the wholesale dealer has successfully obtained such a license, the license must be in public display at the dealer’s place of business. The fee to obtain a license may range between $1,000 and $1,500, depending on the applicant’s previous application status with the tax commission. This fee does not apply to cigarette or tobacco products vending machines. The tax commission has the discretion to require all wholesale dealers to file new licensing applications once every three years.
Cigarette agents and distributors may not sell cigarettes or tobacco products to an unlicensed wholesale dealer or one whose license was suspended or revoked. Likewise, a wholesale dealer is not allowed to sell cigarettes or tobacco products to an unregistered retail dealer or one whose registration was suspended or revoked. A retail dealer of cigarettes or tobacco products must be registered under § 480-a.
The tax commission has broad authority in terms of issuing, suspending, or revoking licenses to wholesale dealers. The commission also has authority to discipline retail dealers who purchase cigarettes or tobacco products from an unlicensed wholesale dealer.
The tax commission may refuse to issue, suspend, or cancel a license to a wholesale dealer for various violations of law. If the tax commission has found for cause reasons to revoke or suspend a license, the wholesale dealer has the right to a hearing to challenge the commission’s determination.
Tobacco retail dealers and sellers must register with the tax commission in order to sell cigarettes or tobacco products at the retail level. Retail dealers must also publicly display their registration certificate at the retail dealer’s place of business. Likewise, vending machines must have affixed a registration certificate. Retail dealers that do not have a retail store must place their certificates on their carts, stands, or any other devices used to sell cigarettes or tobacco products. Alternatively, vending machine registration must be completed by the machine’s owner or operator.
Registration certificates are only valid for one year and must be renewed each year. The application fee for retail dealers was amended in 2011 to $300. The registration is not transferrable.
Failure to publicly display a valid registration certificate at a retail dealer’s place of business may result in civil fines up to $35,000, and failure to publicly display a valid registration certificate on any vending machine may result in civil fines up to $6,000.
The tax commission may cancel or suspend the applicant or retail dealer’s registration certificate. A hearing may be available to the applicant or retail dealer under the provisions of New York Public Health Law, but no hearing rights are provided under the retail dealer registration provisions of the New York Tax Law. A retail dealer selling cigarettes without the required tax stamp or with counterfeit tax stamps can lead to its registration being suspended for up to five years.
If a retail dealer’s registration has been suspended or revoked, it has the right to seek a review by the tax commission to bring evidence or arguments challenging the commission’s decision. If the commission does not find a preponderance of proof that the retail dealer sold improperly stamped cigarettes, then the suspension or revocation will be lifted.
Tobacco product manufacturers must be certified under New York State’s Public Health Laws in order to conduct tobacco products and cigarette sales within the State. Therefore, tobacco agents may not stamp cigarettes produced by uncertified tobacco product manufacturers doing business in the State, and the agent must notify the tax commission of such violations.
Likewise, tobacco product manufacturers in the business of selling roll-your-own tobacco for retail sale must certify they are compliant with New York State’s Public Health Laws in order to conduct such business within the State. Manufacturers must send their certifications to distributors, and distributors must keep the certifications on file for five years. Otherwise, the distributor is prohibited from selling the manufacturer’s tobacco products.
Failure to pay tax or to timely file the necessary tax returns will subject the violator to a penalty based on the total amount of tax due unless the tax commission finds that the failure or delay was due to reasonable cause and not willful neglect, in which case it will determine the appropriate penalty due.
Revenue received from the collection of the State’s cigarette and tobacco products tax stamps shall be deposited and disposed of pursuant to the State Comptroller’s authority under New York Tax Law § 171(a).
Sales and Compensating Use Taxes (Article 28)
When procuring tax stamps, agents prepay the taxes associated with the tax stamps that must be affixed to cigarette products.
Crimes and Other Offenses, Seizures and Forfeitures (Article 37)
It is a felony to willfully attempt to evade New York cigarette and tobacco product tax laws repeatedly or involving large volumes.
It is also a crime to possess, transport, or attempt to sell in large volumes or multiple times cigarettes lacking the necessary tax stamp or using counterfeit tax stamps. The crime may range from a misdemeanor for first-time offenders to a felony for repeat offenders or those who sell more than 10,000 cigarettes.
Anyone who knowingly and willfully produces counterfeit tax stamps shall have committed a felony. Counterfeiting tax stamps may include a broad range of conduct, including making, altering, purchasing, or tendering as true any counterfeit stamps. A person may also be committing a felony if she knowingly and willfully purchased or received devices used to produce counterfeit stamps.
Dealers who knowingly move, possess, or otherwise control cigarettes or tobacco products without having paid the appropriate tax and without the tax commission’s permission shall have committed a misdemeanor. The conviction will be upgraded to a felony on all future violations if the individual has previously violated this provision twice, regardless of the amount of tobacco products involved in the future violation.
Furthermore, retail dealers or vending machine operators conducting business without an authentic registration certificate (as required under Article 20, § 480-a) or who are found to have fraudulently made, altered, or counterfeited such registration certificate shall have committed a misdemeanor.
Anyone not appointed as a tobacco products distributor by the tax commission (as required under Article 20) who imports into New York State more than 50 cigars or 100 pounds of tobacco shall be guilty of a misdemeanor. A misdemeanor is punishable by a fine of no more than $5,000 or thirty days imprisonment. The conviction will be upgraded to a felony on all future violations if the individual has previously violated this provision twice, regardless of the amount of tobacco products involved in the future violation.
A police officer may seize any cigarettes—and the machines used to sell them—found to be in violation of New York Tax Law or New York Administrative Code. Likewise, a police officer may seize any tobacco products (in excess of 500 cigars or 10 pounds of tobacco) discovered and imported into the State through an unauthorized distributor. The property seized by the officer will be turned over to the tax commission (except for any money found in the machines used to sell cigarettes or tobacco products) and forfeited to New York State.
The seized property can be destroyed or sold by the tax commission. The tax commission may allow the owner to recover the seized cigarettes or tobacco products provided that the owner pays the total tax due, plus any penalties, interest accrued on the outstanding tax liability, and administrative costs incurred by the State. The seizure and subsequent sale of cigarettes or tobacco products does not relieve the owner from being further fined or imprisoned under the provisions of applicable New York Tax Laws.