Tax Changes

The 2007 General Assembly in Senate File 128 enacted tax increases for both cigarettes and tobacco products. The changes took effect on Friday, March 16, 2007. The following information was released by the Iowa Department of Revenue and Finance.

Cigarette Tax

Tax Changes for Cigarettes and Little Cigars

• Increase Cigarettes and Little Cigar tax rate on each pack of 20 from $0.36 a pack to $1.36 per pack and on each pack of 25 from $.45 to $1.70
• Increase in mark-up for distributors from 3% to 4% as well as a mark-up for the retailers from 6% to 8% (part of the minimum price Chapter 421B of the Iowa Code)
• Cigarettes shall be sold only in packages of 20 or more cigarettes.

Inventory Tax / Floor Tax

There is no inventory tax or floor tax, but you must raise your prices on March 16, 2007 to include the new tax rates due to the Iowa Unfair Cigarette Sales Act in Chapter 421B.

Minimum Price

The Iowa minimum price list has been changed to reflect the increases in tax and the distributor and retailer mark-ups. The new price list is available on the Web site at www.state.ia.us/tax and from the tax-fax at (1-800-572-3943 and enter form number 71032).

New Forms

Click here to visit the Iowa Department of Revenue Web site for new cigarette/tobacco tax forms. You will need to use the new form starting with all orders on March 16, 2007.

Questions

• send an email to: idrcigarette@iowa.gov
• call Dawn Johnson at 515-281-8023
• mail to Iowa Department of Revenue, Cigarette Tax Unit, PO Box 10456, Des Moines, Iowa 50306-0456.

Tobacco Products

Tax Changes for Tobacco Products

1. Tobacco tax rate increased from 22% to 50% of the wholesale sales price, except snuff (changed to weight based tax) and a limitation of tax on the additional tax on some cigars to not exceed fifty cents per cigar.
2. All snuff now taxed at $1.19 per ounce (with a proportionate tax at the same rate on all fractional parts of an ounce of snuff). “Snuff” means any finely cut, ground, or powdered tobacco that is not intended to be smoked.
3. Cigars – A limitation of the additional 28% tax increase on some cigars not to exceed fifty cents per cigar. This means all cigars (other than little cigars which are still taxed as cigarettes) are all subject to the 22% tax. Of the additional 28% tax increase, the additional tax can not exceed fifty cents per cigar.

Tax Examples

1. All other Tobacco Products (excluding little cigars, snuff and qualified cigars).

• 50% of the wholesale sales price exclusive of any discounts, or reductions.

2. Snuff tax at $1.19 per ounce –

• 1.2 oz = $1.43 tax
• 1.32 oz = $1.57 tax
• 1.5 oz = $1.79 tax

3. Cigar Tax at 50% vs. $.50 maximum

• 10 Count - $40.00 wholesale sales price at 22% tax = $8.80 PLUS
• 10 Count - $40.00 wholesale sales price at 28% tax = $11.20. Since $11.20 divided by 10 = $1.12 additional tax per cigar – this would qualify for new flat tax of $.50 per cigar or $5.00. Tax on the 10 cigars sold for $40.00 as follows: $8.80 + $5.00 = $13.80 total tobacco tax on the $40.00 wholesale sales price
• 25 Count - $44.66 (or under) would be taxed at the 50% rate
• 25 Count - $44.67 (or higher) would use the combination of the 22% rate and the $.50 per cigar limitation or $12.50 tax for this 25 count example

Inventory Tax / Floor Tax

• There is no inventory tax or floor tax.
• In-State Distributors have to pay the new tax rate on any product purchased beginning March 16, 2007 (use invoice dates).
• Out-of-State Distributors have to pay the new tax rate on any product sold into Iowa beginning March 16, 2007 (use invoice dates).

Two returns due for March

Due to a tax increase in the middle of a month, the department requires licensed distributors to file two returns for March. One for the period March 1 to March 15, 2007 using the present forms. One for March 16 to March 31, 2007 using the new forms and schedules. Both are due April 20, 2007.

Tax Forms

• New tobacco tax returns for all in-state and out-of-state distributors are available on the Web at www.state.ia.us/tax under businesses, cigarette/tobacco forms.
• New schedules required for each of the three categories along with separate schedules for credits for returned product and out of state sales.

Questions

• email to: idrcigarette@iowa.gov
• call Dawn Johnson at 515-281-8023.
• By mail to: Iowa Department of Revenue, Cigarette Tax Unit, PO Box 10456, Des Moines, Iowa 50306-0456.

New Prices Effective March 16, 2007

Due to the Iowa cigarette minimum price -everyone selling cigarettes and little cigars needs to raise their prices effective 3/16/07 to reflect the tax increase.

Other tobacco products must be sold with the increased tax included for products sold by distributors effective 3/16/07. Retailers will need to raise their prices to reflect the new tobacco taxes as they replace their inventory of product.

There is a new minimum price list effective 3/16/07.

Please obtain a new copy of the Iowa Minimum Price List from the department's Web site, www.state.ia.us/tax, and click on the businesses link, then click on the cigarette/tobacco forms and information link, then click on the minimum price list form 71-023. The minimum price list is also available from the department's Tax Fax by calling 1-800-572-3943 and entering form 71-023 and your fax number.

If you have further questions you may send an email idrcigarette@iowa.gov or call Dawn Johnson at 515-281-8023.