ATF Ruling 81-2

The Bureau of Alcohol, Tobacco and Firearms has been asked whether the packaging of cigarette paper under the circumstances described below is taxable under section 5701(c) of the Internal Revenue Code of 1954.

A puts up cigarette papers in books of 25 or 18 papers and sells them to B. B then incorporates two or more such books with a consumer package of smoking tobacco. The packages of tobacco delivered to the consumer generally include 36, 72, or 200 papers depending upon the quantity of tobacco in the package.

Section 5701(c) of the Code provides, in part, that a tax shall be imposed on each book or set of cigarette papers containing more than 25 papers which is manufactured in or imported into the United States.

Section 5702(h) of the Code defines a "manufacturer of cigarette papers and tubes" as any person who makes up cigarette paper into books or sets containing more than 25 papers each, or into tubes, except for his own personal use of consumption.

Section 285.21, 27 Code of Federal Regulations, which implements section 5701(c), provides, in part, that a tax is imposed on each book or set of cigarette papers containing more than 25 papers, manufactured in or imported into the United States.

Section 285.41 provides that every person who makes up cigarette papers into books or sets containing more than 25 papers each, except for his own personal use or consumption, shall qualify as a manufacturer of cigarette papers and tubes in accordance with the provisions of 27 CFR Part 285.

In this case, the books put up by A are not taxed because they contain no more than 25 papers. On the other hand, since B groups books of cigarette papers together into units containing more than 25 cigarette papers for subsequent delivery to consumers as a unit, B is a manufacturer of cigarette papers and the units of more than 25 papers each are subject to tax.

Held, B is liable for tax under section 5701(c) of the Code because B manufactures sets of cigarette papers containing more than 25 papers.

Held further, B must qualify as a manufacturer of cigarette papers because B makes up cigarette papers into sets containing more than 25 papers each.

In order to allow persons manufacturing taxable sets of cigarette papers from non-taxable books or sets to comply with the provisions of sections 5701(c) and 5711, and pursuant to 26 U.S.C. 7805(b), this ruling will become effective on November 1, 1981. The tax imposed by section 5701(c) shall be applied to all such taxable sets removed on or after that date, and the manufacturers thereof shall have qualified under the provisions of 27 CFR Part 285. Such sets of cigarette papers removed before November 1, 1981, will not be treated as subject to the provisions of section 5701(c) nor will the manufacture thereof subject the manufacturer to the qualification requirements of section 5711 and 27 CFR Part 285 prior to that date.

27 CFR 285.21, 285.41