Cigarette Wholesaler Not Small Reseller; Cigarette Stamp Taxes Required to Be Capitalized (City Line Candy & Tobacco Corporation, CA-2)

The Tax Court properly found that a cigarettes wholesaler did not qualify for the small reseller exception under Code Sec. 263A and that the company’s cigarette stamp tax costs were required to be capitalized. The company purchased unstamped packages of cigarettes, purchased tax stamps from the state (New York), affixed them to the packages and then resold the stamped packages.

The Tax Court did not err by calculating the taxpayer’s gross receipts based on its total revenue. The taxpayer’s financial accounting method included the tax stamps in gross receipts and the taxpayer failed to show why its tax accounting should differ. Further, the uniform capitalization rules under Code Sec. 263A applied.

Contrary to the taxpayer’s argument the stamp tax costs were not deductible. The regulations specifically list taxes as an indirect cost that must be capitalized to the extent they are properly allocable to property acquired for resale. Moreover, the taxpayer incurred liability for the tax stamps under state law as soon as it offered the cigarettes for sale, not when it sold them. Therefore, the exception in Robinson Knife Manufacturing Company, CA-2, 2010-1 ustc ¶50,300, did not apply.

Unpublished opinion, affirming the Tax Court, Dec. 59,695, 141 TC –, No 13.

City Line Candy & Tobacco Corporation, CA-2, 2015-2 ustc ¶50,506

Other References:

Code Sec. 263A

CCH Reference – 2015FED ¶13,815.23

CCH Reference – 2015FED ¶13,815.59

CCH Reference – 2015FED ¶13,829.30

CCH Reference – 2015FED ¶13,829.70

Tax Research Consultant

CCH Reference – TRC BUSEXP: 9,052.30

CCH Reference – TRC BUSEXP: 9,058.05

CCH Reference – TRC BUSEXP: 9,058.20

 

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

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