Cigarette and Tobacco Products Manufacturer & Importer
Excise Tax

Imposition of tax

The excise tax on cigarettes and tobacco products is imposed on a manufacturer upon their giving away of cigarettes and tobacco products in California. (Regulation 4081)

A sale of cigarettes and tobacco products by a manufacturer to a licensed distributor is not subject to the cigarette and tobacco products excise tax. (Revenue and Taxation Code (RTC) section 30103)

A sale of cigarettes and tobacco products by the original importer to a licensed distributor is not subject to the cigarette and tobacco products excise tax if the cigarettes or tobacco products are manufactured outside the United States. (RTC section 30105)

Visit our tax rate page to view the tax rate on cigarettes and tobacco products.

How cigarettes are taxed

Cigarettes are subject to both the cigarette tax and the cigarette and tobacco products surtaxes.

Cigarette manufacturers and importers must report quantity of cigarettes given away in California on the appropriate tax forms and pay the excise tax owed.

How tobacco products are taxed

Tobacco products are products other than cigarettes. Tobacco products are subject to cigarette and tobacco products surtaxes. Tobacco manufacturers and importers must calculate and report wholesale cost of tobacco products given away in California on the appropriate tax forms and pay the excise tax owed.

Wholesale cost of tobacco products

If a manufacturer or an importer is also the distributor, the wholesale cost of tobacco includes (Regulation 4076(b)(2)):

• All manufacturing costs. Manufacturing costs:
  • Include overhead expenses directly or indirectly attributable to the production of finished tobacco products, which can include, but are not limited to:
    • Production and administrative salaries,
    • Depreciation,
    • Repairs and maintenance,
    • Rent and utilities for the production facilities, and
    • Equipment.
  • Must be allocated to each product unit by a reasonable and consistent pro-rata accounting method.
  • Do not include overhead expenses that are not directly or indirectly attributable to the production of finished tobacco products. These costs can include, but are not limited to, salaries and other expenses for business activities involving selling, distribution, marketing, finance, information technology, human resources, and legal activities.
• The cost of raw materials (including waste materials not incorporated into finished tobacco products) prior to any discounts or trade allowances,
• The cost of labor,
• Federal excise taxes paid,
• U.S. Customs taxes paid,
• Freight or transportation charges for shipment of materials and unfinished products from a supplier to a manufacturer concurrently licensed as a distributor, but excludes domestic freight or transportation charges for shipment of finished tobacco products.

If tobacco products are purchased in a non-arm’s length transaction, the correct wholesale cost may be determined using any of the alternative methods of estimating or calculating wholesale cost as provided in Regulation 4076(c), if the following situations apply:

• If a manufacturer or importer of tobacco products is also a distributor. (Regulation 4076(b)(2))
• If tobacco products costs include express, implicit, or unstated discounts or trade allowances. (Regulation 4076(b)(3))
• If tobacco products are not purchased in an arm’s length transaction. (Regulation 4076(b)(4))

For additional information and examples on how to calculate wholesale cost, visit Regulation 4076.

Examples of who owes the tobacco products tax