When a cigarette manufacturer packages a free promotional item -- like a lighter or playing cards -- together with a pack of cigarettes as a marketing premium, is buying that item a tax-free purchase for resale?

Subject

Issue raised by Petitioner, The American Tobacco Company, is whether the inclusion of a cigarette lighter or other premium with a pack of cigarettes is a sale for resale for sales tax purposes.

What this means for you

A cigarette manufacturer ran promotional campaigns packaging items -- lighters, playing cards, and similar "premiums" -- together with its cigarette packs in blister or adhesive packaging, to boost sales, market penetration, and brand awareness. It asked whether buying these premiums qualified as a tax-free purchase for resale, since they'd ultimately reach the consumer bundled with a taxable product.

New York's resale exclusion only applies when a business buys tangible personal property that it genuinely intends to sell to its customer (in the form purchased or as a component of something else). The sales tax regulations specifically address this exact scenario: tangible personal property that's purchased and given away without charge for promotion or advertising purposes is NOT purchased for resale -- it's treated as a retail sale TO the purchaser (the manufacturer), not a sale to the recipient (the consumer). The same rule extends to items sold for only a token/minimal charge that doesn't reflect true cost, or items not ordinarily sold by that business at all.

Because the cigarette lighters and playing cards here were given away for free as promotional add-ons (not genuinely sold to the consumer for a real price), the manufacturer's purchase of those premiums didn't qualify for the resale exclusion. The manufacturer itself owed sales tax on buying the premiums -- a resale certificate can't be used for this type of purchase.

Q&A

Q: We package a free promotional item with our product to boost sales -- can we buy that item tax-free using a resale certificate?
A: No. New York's regulations specifically treat items purchased and given away for free (for promotion or advertising) as NOT purchased for resale -- you, the purchaser, owe sales tax on buying the promotional item, since you're deemed the end consumer of it, not a reseller.

Q: What if we charge a small nominal fee for the promotional item instead of giving it away entirely free?
A: If the charge doesn't reflect the item's true cost, or the item isn't something you ordinarily sell in your business, the same rule applies -- it's still treated as a retail sale to you, not a resale, and you can't use a resale certificate to buy it tax-free.

Q: Does it matter that the premium is physically packaged with a product we DO sell (like the cigarettes themselves)?
A: No -- the packaging together doesn't change the tax analysis for the premium item specifically. The cigarettes themselves are sold in the ordinary course, but the promotional item bundled in for free is analyzed separately and remains taxable to the manufacturer as purchaser.

Citations

• Tax Law § 1101(b)(4)(i) -- defines a retail sale, excluding sales for resale.
• Tax Law § 1105(a) -- imposes sales tax on retail sales of tangible personal property.
• 20 NYCRR 526.6(c)(4) -- provides that property purchased and given away for free for promotion/advertising (or sold for a minimal, non-reflective charge) is a retail sale to the purchaser, not a resale; a resale certificate can't be used for such purchases.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a95_16s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-95 (16)S
Sales Tax
May 23, 1995

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S941020B

On October 20, 1994, a Petition For Advisory Opinion was received from The American
Tobacco Company, 281 Tresser Boulevard, Stanford, CT 06901-3222.
The issue raised by Petitioner, The American Tobacco Company, is whether the inclusion
of a cigarette lighter or other premium with a pack of cigarettes is a sale for resale for sales tax
purposes.
Petitioner manufactures cigarettes for sale to registered wholesalers and large direct account
retailers with registered wholesaler status. In New York State, registered wholesalers are termed
"agents" as they receive cigarette tax stamping authorization from the Department of Taxation and
Finance. Wholesalers in turn sell the products to jobbers (middlemen) and retailers.
Petitioner supports the selling of products through the advertising media, solicitation by the
sales force and promotional schemes. All these efforts are employed to maintain sales, to increase
market penetration and to increase brand awareness.
Promotional campaigns include items attached to the products for sale. These items can
range from cigarette lighters to playing cards and are packaged together with products in blister
packaging or adhesive packaging concepts. The trade refers to these items as premiums.
Section 1101(b)(4)(i) of the Tax Law defines a retail sale as "[A] sale of tangible personal
property to any person for any purpose, other than (A) for resale as such ..."
Section 1105(a) of the Tax Law imposes sales tax upon "[T]he receipts from every retail sale
of tangible personal property, except as otherwise provided in this article."
Section 526.6(c) of the Sales and Use Tax Regulations define the resale exclusion as follows:
(c) Resale exclusion. (1) Where a person, in the course of his business operations,
purchases tangible personal property or services which he intends to sell, either in the
form in which purchased, or as a component part of other property or services, the
property or services which he has purchased will be considered as purchased for
resale, and therefore not subject to tax until he has transferred the property to his
customer.
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TSB-A-95 (16)S
Sales Tax
May 23, 1995

(4) (i) Tangible personal property which is purchased and given away without charge,
for promotion or advertising purposes is not purchased for resale. It is a retail sale
to the purchaser thereof, and is not a sale to the recipient of the property. (Emphasis
supplied)
(ii) Tangible personal property which is purchased for promotional or advertising
purposes and sold for a minimal charge which does not reflect its true cost, or which
is not ordinarily sold by that person in the operation of his business, is a retail sale
to the purchaser thereof, and not a sale to the recipient of the property.
(iii) A resale certificate may not be used by the person making the purchases
described in subparagraphs (i) and (ii) of this paragraph for such purchases.
Petitioner's purchases of cigarette lighters, playing cards and other items which accompany
the sale of its cigarettes are purchases of the types of tangible personal property described in section
526.6(c)(4)(i) of the Sales and Use Tax Regulations and thus, do not qualify for the resale exclusion
set forth in Section 1101(b)(4)(i) of the Tax Law. Therefore the Petitioner's purchase of such items
are subject to the sales tax imposed pursuant to Section 1105(a) of the Tax Law.

DATED: May 23, 1995

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.