Could Texas sales tax apply to a cigarette price that already included federal and state cigarette taxes paid earlier in the distribution chain?

Plain-English summary

Texas sales tax could be calculated on the full cigarette sales price even though that price reflected federal and state cigarette taxes paid earlier by the manufacturer, distributor, or wholesaler. The letter said no federal or state law prohibited that result.

Those cigarette taxes were expenses of the supplier or seller that were passed to the ultimate consumer. The state sales-tax base included seller expenses, including taxes levied against the supplier or seller.

What this means for you

The historical letter treated embedded excise taxes as part of the seller's taxable price rather than as taxes imposed directly on the retail consumer and excluded from that price.

Common questions

Was this an impermissible tax on a tax? The letter said no law prohibited including the cigarette taxes in the sales-tax base.

Why were the cigarette taxes included? They were supplier or seller expenses passed through in the sales price.

Who paid the underlying cigarette taxes according to the letter? It described the federal tax as likely imposed on the manufacturer and the state tax as paid by the distributor or wholesaler.

Citations and references

• No statute or rule number is cited in the ruling text.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8710L0838D01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

October 9, 1987

Dear ***:

Thank you for your letter of August 27, 1987, concerning the legality of
imposing sales tax on cigarettes which already have federal and state
cigarette taxes paid on them.

It is legal for the state to assess sales tax on federal and state
cigarette
taxes since there is no federal or state law prohibiting the imposition
of
state sales tax in this manner. The federal cigarette tax is likely
imposed
on the cigarette manufacturer and is paid by the manufacturer while the
state
cigarette tax is paid by the distributor or wholesaler. These taxes are
expenses incurred which are passed on to you, the ultimate consumer.

The state sales tax law requires a seller to collect sales tax on sales
price
of a taxable item sold. The sales price of a taxable item sold includes
all
other expenses (which includes taxes levied against the supplier or
seller)
incurred by the seller.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need more information, please call me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Policy Division.

Sincerely,
Eddie C. Washington
Tax Policy Division