UNLAWFUL TRANSPORTATION, SHIPMENT, OR SALE OF CIGARETTES
AND DOMESTIC SALE OF CIGARETTES LABELED FOR EXPORT
Manufacturers of Cigarettes, Importers, Export Warehouse Proprietors
and Other Persons Who Purchase and Sell Cigarettes
PURPOSE. The Bureau of Alcohol, Tobacco and Firearms
(ATF) is issuing this circular to remind all persons of the Federal
laws (and penalties) applying to the shipment, sale or possession
of cigarettes and to the domestic sales of cigarettes marked for
export. Additionally, this circular briefly addresses the sale of
cigarettes on Native American tribal reservations.
BACKGROUND. Every State imposes some tax on the sale
of cigarettes. The liability for these taxes generally arises once
the cigarettes enter the jurisdiction of the State. The vast majority
of States requires a "tax stamp or imprint" to be placed on packages
of cigarettes to demonstrate that the State tax has been paid. Wholesale
distributors in the various States are generally responsible for
the payment of the State tax and for affixing the tax stamp or imprint.
Recognizing that the range in State cigarette taxes creates a potential
for interstate trafficking in cigarettes to avoid State tax, Congress
has enacted Federal laws to help ensure the State cigarette taxes
are paid. These Federal laws make it unlawful to traffic in cigarettes
to avoid State cigarette taxes. Moreover, these laws impose certain
record keeping and reporting requirements on persons who ship cigarettes
in interstate commerce. Violations of these Federal laws can result
in the imposition of a prison term, a monetary fine, or both. These
laws are discussed in detail below to ensure that people who are
engaged in the interstate sale or shipment of cigarettes are familiar
with these requirements. ATF has encountered a number of situations
in which cigarettes are being sold or shipped in violation of these
Federal laws.
In addition, ATF has received several inquiries regarding the legality
of the domestic sale of cigarettes bearing the export mark "U.S.
tax exempt for use outside the U.S." Such sales are governed by
Federal law. Violations of these Federal laws can result in the
imposition of a Federal prison term, a mandatory fine, or both.
These laws are discussed in detail below to ensure that people who
engage in the domestic sale of cigarettes marked for export are
familiar with these requirements.
CONTRABAND CIGARETTE TRAFFICKING ACT
The Contraband Cigarette Trafficking Act, which can be found at
title 18, United States Code, chapter 114, makes it unlawful for
any person, other than an "exempt person," to ship, transport, receive,
possess, sell, distribute, or purchase "contraband cigarettes."
"Contraband cigarettes" are defined as a quantity of more than 60,000
cigarettes that bear no evidence of the payment of any State cigarette
tax imposed by the State where such cigarettes are found. The Contraband
Cigarette Trafficking Act applies only to cigarettes found in States
that require a stamp or other indicia to be placed on cigarette
packages to evidence payment of the tax.
The following persons are "exempt persons" under the Contraband
Cigarette Trafficking Act:
-
Any person licensed or otherwise authorized by the State in
which the person possesses the cigarettes, to account for and
pay the cigarette taxes imposed by that State, so long as that
person is complying with the accounting and payment requirements
relating to his or her license or authorization.
-
Any person who is an agent of the United States, an individual
State, or a political subdivision of a State who possesses,
ships or receives the cigarettes in connection with the performance
of his or her official duties.
-
Any person operating within a foreign trade zone, established
under Federal law, when the cigarettes in question have entered
the zone under zone-restricted status. The same exemption applies
with respect to foreign imported cigarettes that have been admitted
into the zone but have not entered the United States.
The Contraband Cigarette Trafficking Act also requires persons
who ship, sell, or distribute more than 60,000 cigarettes in a single
transaction to keep certain records about the shipment, receipt,
sale, and distribution of such cigarettes. Any person who distributes
more than 60,000 cigarettes in a single transaction is required
to keep copies of invoices, bills of lading, or other suitable commercial
records relating to each distribution of 60,000 cigarettes or more.
Dividing a single agreement for the disposition of more than 60,000
cigarettes into multiple deliveries or shipments of smaller components
of 60,000 cigarettes or less does not exempt the person from keeping
these records.
When an exempt person/distributor distributes more
than 60,000 cigarettes to another exempt person, OR
When an exempt person/distributor distributes more
than 60,000 cigarettes to a non-exempt person, but only where
the exempt person/distributor delivers the cigarettes to the non-exempt
person’s place of business, the distributor’s dated commercial records
must contain the following information:
- The full name of the purchaser (or recipient if there is
no purchaser)
- The street address (including city and state) where the cigarettes
are destined
- The quantity of cigarettes distributed
In all other cases where a distributor (exempt or non-exempt person)
distributes more than 60,000 cigarettes, the distributor’s dated
commercial records must show the following:
- The full name of the purchaser (if any)
- The name, address (including city and state), and signature
of the person receiving the cigarettes
- The street address (including city and state) where the cigarettes
are destined
- The quantity of cigarettes distributed
- The driver’s license number of the individual receiving the
cigarettes
- The license number of the vehicle in which the cigarettes
are removed from the distributor’s business premises
- A declaration by the individual receiving the cigarettes
of the specific purpose of receipt (such as personal use,
resale, delivery to another person, etc.)
- A declaration by the person receiving the cigarettes of the
name and address of his or her principal when acting as an
agent
These dated commercial records must be kept on the business premises
of the distributor. Generally, distributors must keep these records
for three years following the close of the year in which the records
were made. The ATF regulations on the Contraband Cigarette Trafficking
Act are found at title 27, Code of Federal Regulations, sections
296.141 to 296.155.
A violation of the Contraband Cigarette Trafficking Act, including
failure to keep the required records, is a Federal felony. Conviction
of these crimes can result in a Federal prison term, a monetary
fine, or both. Moreover, persons who aid and abet violations of
the Contraband Cigarette Trafficking Act, or persons who conspire
with others to violate the Contraband Cigarette Trafficking Act
can be imprisoned and/or fined as well. The Federal aiding and abetting
statute can be found at title 18, United States Code, section 2
and the Federal conspiracy statute can be found at title 18, United
States Code, section 371.
JENKINS ACT
The Jenkins Act, which can be found at title 15, United States
Code, section 375, applies to certain persons who sell cigarettes
or advertise the sale of cigarettes in interstate commerce, including
mail order sales and advertisements for such sales. Any person who
advertises cigarettes for sale (including on the Internet) or who
ships cigarettes into a State to any person other than a cigarette
distributor licensed by the State must file a statement with the
tobacco tax administrator of that State. The statement must list
the seller’s name, trade name (if any), and address of all business
locations.
The Jenkins Act also requires a person who ships cigarettes into
a State to any person (other than a person licensed by that State
as a wholesale or retail distributor) to report these sales to the
tobacco tax administrator. This report must be filed no later than
the 10th calendar day of the month and must contain the
following information for shipments made into that State during
the previous month:
- The name and address of the person to whom the shipments
were made
- The brand of cigarettes shipped
- The quantity of cigarettes shipped
Copies of commercial records can be utilized for this report, so
long as the commercial record contains all of the necessary information.
This report is not required if the shipment is made to a person
who is a licensed wholesale or retail distributor in the State into
which the cigarettes are shipped.
A violation of the Jenkins Act can result in a Federal prison term,
a monetary fine, or both.
DOMESTIC SALE OF CIGARETTES MARKED FOR EXPORT
The Internal Revenue Code of 1986, title 26, United States Code,
section 5701 imposes a Federal excise tax on tobacco products manufactured
or imported into the United States. This tax does not apply to exported
products. Packages of exported products must be marked for export
to differentiate them from packages intended for domestic sale.
ATF regulations currently permit the re-importation and sale of
packages of products marked for export so long as the Federal excise tax and applicable Customs duties are paid when
the cigarettes are re-imported.
The Internal Revenue Code has been amended to restrict the re-importation
of exported tobacco products. These amendments only permit the re-importation
of tobacco products to a Federally licensed manufacturer or a Federally
licensed export warehouse proprietor. Tobacco products re-imported
to a manufacturer will have to be repackaged to remove the exportation
markings before being sold on the domestic market. Tobacco products
re-imported to an export warehouse proprietor can only be exported
again or transferred to a tobacco product manufacturer. As a result
these amendments will make it unlawful to sell tobacco products
marked for export on the U.S. domestic market. These amendments
become effective January 1, 2000.
Violations of these provisions can be prosecuted as Federal felonies.
Convictions can result in a Federal prison term, a monetary fine,
or both. In addition, persons who possess Federally untaxed tobacco
products can be assessed the full amount of tax due, plus applicable
interest and penalties.
SALES/PURCHASES INVOLVING NATIVE AMERICAN RESERVATIONS
ATF has recently received several inquiries about cigarette sales
and purchases that involve Native American reservations. Sales or
shipments of cigarettes from Native American Reservations are not exempt from the requirements of the Contraband Cigarette Trafficking
Act and the Jenkins Act. Additionally, the application of State
taxes and regulatory requirements to sales made on Native American
reservations varies depending on the transaction. Accordingly, anytime
you engage in transactions involving a Native American Reservation,
ATF recommends that you contact your State tobacco tax administrator
to determine the extent of your liability for State tobacco tax.
STATE TOBACCO TAX ADMINISTRATORS
Enclosed with this circular is a listing of State tobacco tax contacts.
ATF encourages you to contact those offices if you have any question
relating to potential liability for State cigarette taxes, record
keeping or reporting requirements.
Alabama
(334) 242-9600
Alaska
(907) 465-3691
Arizona
(602) 542-4023
Arkansas
(501) 682-7187
California
(916) 327-3276
Colorado
(303) 866-2381
Connecticut
(860) 297-5891
Delaware
(302) 577-3300
District of Columbia
(202) 727-6070
Florida
(904) 488-3227
Georgia
(404) 656-4252
Hawaii
(808) 587-1622
Idaho
(208) 334-7602
Illinois
(312) 814-1750
Indiana
(317) 232-2199
Iowa
(515) 281-8023
Kansas
(913) 296-2461
Kentucky
(502) 564-5440 |
Louisiana
(504) 925-7652
Maine
(207) 287-4755
Maryland
(410) 974-5388
Massachusetts
(617) 887-5090
Michigan
(517) 322-6303
Minnesota
(800) 657-3618
Mississippi
(601) 359-1137
Missouri
(573) 751-3804
Montana
(406) 444-1930
Nebraska
(402) 471-5676
Nevada
(702) 687-6483
New Hampshire
(603) 271-3701
New Jersey
(609) 984-1225
New Mexico
(505) 827-0762
New York
(518) 457-0432
North Carolina
(919) 733-1352
North Dakota
(701) 328-3471
Ohio
(614) 466-6939 |
Oklahoma
(405) 521-4104
Ontario
(905) 433-6335
Oregon
(503) 945-8117
Pennsylvania
(717) 783-4649
Rhode Island
(401) 277-6260
South Carolina
(803) 737-4867
South Dakota
(605) 773-3311
Tennessee
(615) 741-2679
Texas
(512) 463-3869
Utah
(801) 297-4671
Vermont
(802) 828-2310
Virginia
(703) 591-9222
Washington
(360) 753-3226
West Virginia
(304) 558-8516
Wisconsin
(608) 266-2479
Wyoming
(307) 777-5293 |
QUESTIONS. If you have any questions or comments in connection
with this industry circular, please do not hesitate to contact ATF’s
Diversion Branch at 202-927-3580.
Arthur J. Libertucci
Assistant Director (Alcohol and Tobacco)
|