Cigarette and Tobacco Products Distributor
Excise Tax

Imposition of tax

The excise tax on cigarettes and tobacco products is paid by a distributor upon their distribution of cigarettes and tobacco products in California.

A distribution includes the sale, use, or consumption of untaxed cigarettes, or untaxed tobacco products in California, and the placing of untaxed cigarettes or untaxed tobacco products into a vending machine or retail stock in California.

How cigarettes are taxed

Cigarettes are subject to both the cigarette tax and the cigarette and tobacco products surtaxes. The excise taxes on cigarettes are assessed on each cigarette distributed in California. Visit our tax rate page to view the tax rate on cigarettes.

Cigarette distributors pay the excise taxes by purchasing cigarette tax stamps from us. Distributors are required to affix the tax stamp to each package of cigarettes before distribution. In turn, distributors receive a purchase discount of 0.85 percent of the total tax value per purchase order to help offset the cost of affixing cigarette tax stamps. As of April 1, 2017, the 0.85 percent discount for cigarette tax stamps only applies to the first one dollar ($1.00) of the stamp value (Revenue and Taxation Code [RTC] section 30166). For example, distributors are allowed a maximum discount of $255 on each roll of 30,000 stamps they affix to packs of cigarettes (0.0085 × [30,000 packages × $1.00 (maximum cap rate)] = $255.00). Distributors pass the cigarette taxes on to their customers as part of the selling price of the cigarettes.

How tobacco products are taxed

Tobacco products are products other than cigarettes. Tobacco products are subject to cigarette and tobacco products surtaxes. The excise tax on tobacco products is imposed upon the distribution of tobacco products and is paid by tobacco products distributors.

A tobacco products distributor is required to calculate the amount of tobacco products tax due by applying the tobacco products tax rate to the wholesale cost of the tobacco products distributed in California and pay the total amount owed each reporting period.

Calculation of tax

The excise tax is due on the California licensed tobacco products distributor’s wholesale cost of the tobacco products. The distributor’s wholesale cost is usually the list price on their purchase invoice from their supplier prior to any discounts or trade allowances. The tax rate that applies is the rate in effect at the time the distributor sells the tobacco products. For additional information on how to calculate wholesale cost, visit Regulation 4076.

Distributors are responsible for paying the excise tax on their taxable distributions (sales) and must:

• Indicate the excise tax on the sales invoice issued to customers,
• Calculate the excise tax due based on their wholesale cost,
• Report their distribution of the tobacco products, based on the date sold, on the tax return, and
• Pay the total amount due to us.

For additional reference, visit special notice L-506, Tobacco Product Sales by Out-of-State Distributors to In-State Distributors.

Examples of who owes the tobacco products tax

Nontaxable transactions

The following sales and distributions of cigarettes and tobacco products are generally not subject to the excise tax although these transactions may be subject to reporting requirements. The list may not include all transactions that are not subject to the excise taxes.

• Sales by a distributor to a common carrier engaged in interstate or foreign passenger service.
  Please note: To properly support your claim for the interstate commerce exemption, you must:
  • Maintain adequate documentation. Evidence of delivery of cigarettes or tobacco products to a destination outside of California must be kept by the distributor. In the case of cigarettes or tobacco products for foreign export, copies of United States Customs shippers’ export declarations filed with the Collector of Customs or other documentary evidence of export must be obtained and retained.
  • Claim the correct wholesale cost for tobacco products. You must include all distributions of untaxed tobacco products must be included in the wholesale cost of distributions. With proper documentation, sales of tobacco products which are shipped to a buyer outside of California may be claimed as an exempt sale. You may claim is the wholesale cost to the distributor, not the distributor’s selling price.
• Sales to United States military exchanges, commissaries, ships’ stores, or the U.S. Department of Veterans Affairs (RTC section 30102).
• Distributions of federally untaxed cigarettes or tobacco products that are under Internal Revenue bond or U.S. Customs control (RTC section 30102.5).
• An individual shipment of not more than 400 cigarettes (typically 20 packs or 2 cartons) obtained at one time from any of the federal instrumentalities listed in RTC section 30102 or personally transported into California in a single lot or shipment (RTC Section 30106).
• Sales and distributions of cigarettes and tobacco products that cannot be taxed by the state under the U.S. Constitution or federal law, or under the California Constitution or state law, such as shipments to purchasers in other states, territories, or foreign countries when the cigarette and tobacco products are not to be returned to California before use.
• Sales of cigarettes or tobacco products by a Native American tribe to a member of that tribe on that tribe’s land.
• Sales of untaxed cigarettes or tobacco products by a distributor and exported to a point outside of California (Regulation 4080).

Sales involving Native Americans: basic application of tax

A non-Native American cigarette or tobacco products distributor who sells cigarettes or tobacco products to a Native American must pay the excise taxes and apply California cigarette tax stamps to the cigarette packages. There are no exemptions for such sales of cigarettes and tobacco products to Native Americans.