LR 2002-05 Tobacco Tax; Gratis Cigarettes

This Letter Ruling provides guidance to persons providing gratis cigarettes to the public.

Pursuant to Michigan's Tobacco Products Tax Act, "Beginning May 1, 1998, before delivery, sale or transfer to any person in this state, a wholesaler or an unclassified acquirer shall place or cause to be placed on the bottom of each individual package of cigarettes to be sold within this state a stamp provided by the department." MCL 205.425a(2).

A "stamp" is defined as, "a distinctive character, indication, or mark, as determined by the department, attached or affixed to an individual package of cigarettes by mechanical device or other means authorized by the department to indicate that the tax imposed under this act has been paid." MCL 205.422.

The term "wholesaler" means, "a person who purchases all or part of his or her tobacco products from a manufacturer, who sells 75% or more of those tobacco products to others for resale, and who maintains an established business where substantially all of the business is the sale of tobacco products or cigarettes and related merchandise at wholesale and where at all times a substantial stock of tobacco products and related merchandise is available to retailers for resale. Wholesaler includes a chain of stores retailing a tobacco product to the consumer if 75% of its stock of tobacco products is purchased directly from the manufacturer." MCL 205.422(x).

The term "unclassified acquirer" is defined as "a person, except a transportation company or a purchaser at retail from a retailer licensed under the general sales tax act, 1933 PA 167, MCL 205.51 to 205.78, who imports or acquires a tobacco product from a source other than a wholesaler or secondary wholesaler licensed under this act for use, sale, or distribution. Unclassified acquirer also means a person who receives cigars, noncigarette smoking tobacco, or smokeless tobacco directly from a manufacturer licensed under this act or from another source outside this state, which source is not licensed under this act. An unclassified acquirer does not include a wholesaler." MCL 205.422(u).

Taxpayers statutorily defined as a "wholesaler" or an "unclassified acquirer," may not deliver, sell, or transfer to any person in Michigan a package of cigarettes to be sold within Michigan that does not possess a "stamp" that has been approved by the department. Under the Tobacco Products Tax Act, a "sale" is defined as "a transaction by which the ownership of tangible personal property is transferred for consideration and applies also to use, gifts, exchanges, barter, and theft." MCL 205.422(m). This means that despite the fact that a statutorily defined wholesaler or unclassified acquirer is giving packages of cigarettes to a person in Michigan free of charge, this transfer is considered "a sale." Therefore, all wholesalers or unclassified acquirers must either affix, or cause to be affixed, the stamps to the packages of cigarettes prior to a sale, transfer, or delivery of the gratis cigarettes to a person in Michigan.

If you have further questions regarding the Michigan Tobacco Products Tax Act, please contact the Customer Contact Division in writing at the following address:

Michigan Department of Treasury
430 W. Allegan Street
Lansing, Michigan 48922.

November 25, 2002
LR 2002-5
Donna Donovan
Director, Bureau of Tax Policy