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Revenue Administrative Bulletin 2021-8

Revenue Administrative Bulletin 2021-8

INTERPRETATIVE BULLETIN FOR MANUFACTURERS UNDER 2020 PA 326

Approved: May 28, 2021

Pursuant to MCL 205.6a, a taxpayer may rely on a Revenue Administrative Bulletin issued by the Department of Treasury after September 30, 2006, and shall not be penalized for that reliance until the bulletin is revoked in writing.  However, reliance by the taxpayer is limited to issues addressed in the bulletin for tax periods up to the effective date of an amendment to the law upon which the bulletin is based or for tax periods up to the date of a final order of a court of competent jurisdiction for which all rights of appeal have been exhausted or have expired that overrules or modifies the law upon which the bulletin is based.

RAB 2021-8.   This Revenue Administrative Bulletin ("RAB") explains how the Michigan Department of Treasury ("Department") interprets and intends to administer certain provisions related to tobacco product manufacturers under the Tobacco Products Tax Act ("TPTA"), MCL 205.421 et seq., as amended by 2020 PA 326 ("PA 326").

INTRODUCTION

The Department periodically issues bulletins that explain its interpretation of current state tax laws.[1]  This RAB explains the Department's interpretation of the "manufacturer" carve-out language, relating to unclassified acquirers, added by PA 326, as part of the amendments to the definition of "unclassified acquirer" under Section 2 of the TPTA, MCL 205.422, and as used in Section 11 of the TPTA, MCL 205.431.  The amendments to the TPTA made by PA 326 become effective January 1, 2022.

As amended by PA 326, the definition of "unclassified acquirer" includes a person located outside Michigan that makes remote sales to a person in Michigan that is not licensed under the TPTA as a wholesaler, secondary wholesaler, or unclassified acquirer "other than a manufacturer."  Likewise, MCL 205.431 (as amended by PA 326) includes several references to an "unclassified acquirer that is not a manufacturer" and an "unclassified acquirer other than a manufacturer."   To clarify these references, the Department is issuing this RAB to explain how the Department will interpret and administer MCL 205.422 and MCL 205.431 considering those references.[2]     

ISSUES

I. What is meant by the phrase "unclassified acquirer other than a manufacturer" in the remote sales language added by PA 326 to the definition of "unclassified acquirer" under MCL 205.422?

II. Under the remote sales language added by PA 326 to the definition of "unclassified acquirer," would a remote seller be considered an unclassified acquirer if it sells a tobacco product to an unclassified acquirer in this state that is licensed solely as a manufacturer under MCL 205.423(3)(d)?

III. Under the remote sales language added by PA 326 to the definition of "unclassified acquirer," would a remote seller be considered an unclassified acquirer if it sells a tobacco product to an unclassified acquirer in this state that is not licensed solely as a manufacturer under MCL 205.423(3)(d)?

IV. Is it lawful under the TPTA for a manufacturer to sell its tobacco products directly to a Michigan retailer or Michigan consumer in accordance with MCL 205.431 if that manufacturer holds the appropriate unclassified acquirer license?

V. Is it lawful under the TPTA for a Michigan retailer or Michigan consumer to acquire a tobacco product from a manufacturer located outside Michigan if that manufacturer holds the appropriate unclassified acquirer license?

VI. Notwithstanding section 8(2) of the TPTA, MCL 205.428(2),[3] is it lawful under the TPTA for a Michigan retailer to purchase, possess, acquire for resale at retail, or sell a tobacco product in Michigan that was purchased or otherwise acquired directly from a manufacturer who holds the appropriate unclassified acquirer license?

CONCLUSIONS[4]

  1. The phrase "unclassified acquirer other than a manufacturer" in the remote sales language added by PA 326 to the "unclassified acquirer" definition means an unclassified acquirer that is not licensed solely as a manufacturer under MCL 205.423(3)(d)(v). 
  2. Yes, a remote seller would be considered an unclassified acquirer if it sells a tobacco product to an unclassified acquirer in this state that is licensed solely as a manufacturer under MCL 205.423(3)(d)(v).
  3. No, a remote seller would not be considered an unclassified acquirer under the language added by PA 326 to the definition of "unclassified acquirer" if it sells a tobacco product to person in this state, licensed as an unclassified acquirer under any other provision of MCL 205.423(3)(d), even if that person is also licensed as a manufacturer under MCL 205.423(3)(d)(v).
  4. Yes, if the manufacturer holds the appropriate "unclassified acquirer" license for the tobacco product it is selling. 
  5. Yes, if the manufacturer through whom the retailer or consumer is acquiring the tobacco product holds the appropriate "unclassified acquirer" license for the tobacco product being acquired. 
  6. Yes, if the manufacturer from whom the retailer purchased or otherwise acquired the tobacco product holds the appropriate "unclassified acquirer" license for the tobacco product being transacted.  

ANALYSIS AND DISCUSSION

As amended by PA 326, the "unclassified acquirer" definition in the TPTA includes in relevant part:

  1. a person "who imports or acquires a tobacco product from a source other than a wholesaler or secondary wholesaler licensed under [the TPTA] for use, sale, or distribution in this state;"
  2. a person "who purchases or receives tobacco products directly from a manufacturer licensed under [the TPTA] or from another source outside this state, which source is not licensed under [the TPTA];" or
  3.  "a person not located in this state that sells a tobacco product, through a mail order, catalog sale, telephone order, internet sale, or any other means, to a retailer or other person in this state that is not licensed under this act as a wholesaler, unclassified acquirer other than a manufacturer, or secondary wholesaler."[5] 

The TPTA declares that a person may not purchase, possess, acquire for resale, or sell a tobacco product "as a manufacturer … [or] unclassified acquirer … in this state unless licensed to do so."[6]  Moreover, the TPTA requires that a person obtain a license for each capacity requiring licensure in which a person engages.[7]  Even though a person acting as a "manufacturer" and a person acting as an "unclassified acquirer" are different capacities each requiring licensure, the TPTA establishes the manufacturer license as a subset of the "unclassified acquirer" license category along with other subsets.   The license subsets and associated annual fees for the "unclassified acquirer" license category are as follows:

Unclassified Acquirer License

            (i) State of Michigan, no fee.

            (ii) Retail importer of tobacco products other than cigarettes, $10.00.

            (iii) Retail importer of cigarettes, $100.00.

            (iv) Vending machine operator buying direct from a manufacturer, $100.00.

            (v) Manufacturer, $100.00.

            (vi) Any other importer, $100.00.[8]

In recognition of this distinction among "unclassified acquirer" license subsets,[9] and the interpretive canon directing that the TPTA be read as a whole,[10] the Department construes PA 326 as excluding persons licensed solely under the "manufacturer" subset of the unclassified acquirer license (as described in MCL 205.423(3)(d)(v))[11] when the phrase "unclassified acquirer other than a manufacturer" or the phrase "unclassified acquirer that is not a manufacturer" is used in the definition of "unclassified acquirer" in MCL 205.422 or in MCL 205.431(1) - (4).  In other words, the Department interprets these phrases as relating to a person who holds the appropriate "unclassified acquirer" license (subset) for the tobacco product being transacted and excluding those persons whose only "unclassified acquirer" license is the "manufacturer" subset described in MCL 205.423(3)(d)(v).

Accordingly, to lawfully engage in the transactions described in MCL 205.431(1) - (4), a person who is a manufacturer would need to obtain the appropriate "unclassified acquirer" license for the type of tobacco product at issue.  If the tobacco products are cigarettes, the relevant license would be that of an "unclassified acquirer-retail importer of cigarettes."  If, the tobacco products are non-cigarette tobacco products (e.g., cigars), the relevant license would be that of an "unclassified acquirer-retail importer of tobacco products other than cigarettes."[12]

[1] See MCL 205.3(f).

[2] References in this RAB to a "manufacturer" relates to a person who is a "manufacturer" (as that term is defined under Section 2 of the TPTA, MCL 205.422).

[3] MCL 205.428(2) allows for certain activities concerning the possession and sale, exchange, or other disposition of tobacco products in Michigan by a person who is a representative of a licensed manufacturer.

[4] These conclusions assume compliance with any other applicable requirements under the TPTA and/or other applicable federal and state laws.

[5] MCL 205.422(ff); emphasis added.  An unclassified acquirer does not include a wholesaler.

[6] MCL 205.423(1).

[7] MCL 205.423(2).

[8] MCL 205.423(3); emphasis added.

[9] When enacting legislation, the Legislature is presumed to be "fully aware of existing statutes" and "to know the law as it existed before the amendment and to have considered its effect on new legislation."  See Alvin Motor Fright, Inc v Dep't of Treasury, 281 Mich App 35, 41 (2008) and Williams v Auto Club Group Ins Co, 224 Mich App 313, 319 (1997). 

[10] Words in a statute are not to be construed in a vacuum but must be read together to harmonize the meaning, giving effect to the act as a whole.  See GC Timmis & Co v Guardian Alarm Co, 468 Mich 416, 421 (2003).

[11] Of course, a manufacturer that holds no TPTA license would also be excluded.

[12] These are also the relevant "unclassified acquirer" license subsets for purposes of the remote sales language added to the definition of an "unclassified acquirer" by PA 326.