ATF Ruling 82-11

The Bureau of Alcohol, Tobacco and Firearms has been asked whether a manufacturer of cigarettes is entitled to a refund of floor stocks tax under the following circumstances.

Situation #1: A manufacturer of cigarettes removes small cigarettes from bond prior to January 1, 1983, and pays a tax of $4 per thousand on the cigarettes. The cigarettes are delivered to a wholesaler who holds them for sale on January 1, 1983. The wholesaler pays a floor stocks tax of $4 per thousand. The cigarettes are subsequently returned to the manufacturer who replaces them with cigarettes removed from bond after January 1, 1983, on which the manufacturer pays a tax of $8 per thousand.

Situation #2: The same as situation #1 except that the manufacturer reimburses the wholesaler for the floor stocks tax paid by the wholesaler.

Section 283 of the Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, in addition to doubling the rate of tax on cigarettes removed from bond after January 1, 1983, and before October 1, 1985, imposed a tax on certain cigarettes removed from bond prior to January 1, 1983, which are held for sale on such date. The person holding the cigarettes on January 1, 1983, is liable for the floor stocks tax.

Section 5705 of the Internal Revenue Code of 1954 provides that a refund of any tax imposed by Chapter 52 shall be made to a manufacturer, importer, or export warehouse proprietor, on proof satisfactory to the Secretary, that the claimant manufacturer, importer, or export warehouse proprietor paid the tax on the cigarettes withdrawn by him from the market.

Section 270.283, Title 27, Code of Federal Regulations, provides that taxes paid on cigarettes may be refunded to a manufacturer on proof satisfactory to the regional regulatory administrator that the claimant manufacturer paid the tax on the cigarettes withdrawn by him from the market.

The floor stocks tax is a tax on cigarettes imposed by Chapter 52 of the Internal Revenue Code of 1954. Accordingly, under sections 5705 and 270.283, a manufacturer is entitled to a refund of the floor stocks tax on cigarettes removed by him from the market if he has paid the tax.

Held, with respect to situation #1, the wholesaler, not the manufacturer, paid the floor stocks tax. Therefore, the claimant manufacturer is not entitled to a refund of the floor stocks tax under the circumstances set forth in situation #1.

Held further, with respect to situation #2, the wholesaler is the person who actually remitted the floor stocks tax to the Government and the manufacturer simply reimbursed the wholesaler in respect of such tax. Therefore, the claimant manufacturer is not entitled to a refund of the floor stocks tax under the circumstances set forth in situation #2.

While the manufacturer may argue that he bore the ultimate financial burden of the floor stocks tax and hence that he is entitled to a refund of the tax, sections 5705 and 270.283 provide that the manufacturer must have "paid" the tax in order to be entitled to a refund thereof. In this case, the wholesaler actually paid the tax to the Government. The manufacturer has not paid the tax but has merely compensated the wholesaler for tax paid by the wholesaler.

Furthermore, under section 5705 and its implementing regulations, a wholesaler is not entitled to a refund of floor stocks taxes paid by him on cigarettes withdrawn from the market because, under the express terms of these provisions, only manufacturers, importers, and export warehouse proprietors are entitled to a refund of taxes paid on cigarettes withdrawn from the market.

This Ruling also applies to claims for refund of tax filed by importers under 26 U.S.C. 5705.

27 CFR 270.282, 270.283, 275.163