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Unpublished opinion, affirming the Tax Court, Dec. 59,695, 141 TC –, No 13.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



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