Changes to the tobacco tax system applicable to cigars

In its 2007-8 information bulletin published on November 9, 2007, the Ministère des Finances du Québec announced changes to the tobacco tax system regarding cigars.

The following information is provided so that your business may make the appropriate changes.

New method for advance collection

Collection officers who sell cigars wholesale to other collection officers after January 31, 2008, will not be required to collect the tobacco tax in advance.

However, collection officers who sell cigars to retailers will have to collect from retailers, in advance, the tobacco tax of 80% calculated on the taxable price of cigars and remit the tax to the Minister of Revenue, in accordance with the Tobacco Tax Act.

In that case, the taxable price of a cigar on which collection officers must calculate and collect the tobacco tax will be the sale price paid by retailers to collection officers, increased by 20%. A sample calculation of the taxable price of cigars sold by a wholesaler to a retailer is illustrated in example 1 below.

Consequently, the calculation method that increases by 35% the price of cigars sold by manufacturers or importers to wholesalers to determine the amount of tax to be collected in advance will no longer be used.

Effect on collection officers who entered into a collection agreement

The provisions of the agreements regarding the collection or remittance of the tobacco tax entered into between the Minister of Revenue and certain businesses will no longer apply to cigars acquired or sold after January 31, 2008. The other provisions of the agreements still apply to tobacco products other than cigars.

Special rules for collection officers who are retailers

Special rules will apply after January 31, 2008, to collection officers who also make retail sales of cigars. These collection officers, just like any other collection officer, will no longer have to pay the tobacco tax in advance to their suppliers on cigars they acquire. In addition, if they sell these cigars to retailers, they will have to collect in advance the tobacco tax applicable to cigars based on the taxable price determined under the above-mentioned rules.

Collection officers who make retail sales of cigars will have to collect the tobacco tax from consumers and remit the tax to the Minister of Revenue, in accordance with the Act. In that case, the taxable price of the cigars, on which the tobacco tax of 80% will be calculated, will be the price paid to suppliers, increased by 20%. A sample calculation of the taxable price of cigars sold by a wholesaler to a consumer is illustrated in example 2 below.

Retail sale by importers or manufacturers

Importers or manufacturers who, after January 31, 2008, sell directly to consumers cigars they imported or manufactured will also be required to collect the  tobacco tax of 80% on the taxable price of the cigars and remit the tax to the Minister of Revenue, in accordance with the Act. In that case, the taxable price of the cigars will be the sale price to consumers. A sample calculation of the taxable price of cigars sold by an importer or manufacturer to a consumer is illustrated in example 3 below.

Statement regarding cigar sales

All collection officers who sell cigars after January 31, 2008, will have to enclose with their tobacco tax return a statement regarding the wholesale sales of cigars during the period. The statement will be made using Schedule TA-17.5 (which will include a new page) enclosed with the tobacco tax return that collection officers receive monthly.

Consequently, collection officers who currently provide a detailed sales statement (or tax memo) to the Minister of Revenue will no longer have to include data on cigar sales made after January 31, 2008.

Invoice to retailers

Collection officers who sell cigars wholesale to retailers after January 31, 2008, will have to provide retailers with an invoice of the transaction. In addition to the date of sale and the names and addresses of the parties to the transaction, the invoice will have to clearly indicate the following information:

  • for each cigar, its sale price, its taxable price and the amount equal to the tax collected or to be collected;
  • the quantity of each type of cigars sold;
  • any other prescribed information.

Inventory

To make the transition from the current tobacco tax collection system to the new system easier, all collection officers will have to draw up an inventory of cigars they have in stock at 0:01 a.m. on February 1, 2008, using the form that will be sent to them in mid-January. The form will have to be returned to Revenu Québec no later than February 10, 2008.

Note

Cigars acquired by a person before midnight on January 31, 2008, but not yet delivered, are to be included in the stock.

The inventory will make it possible to determine the amount, if any, corresponding to the difference between the tobacco tax paid or to be paid on the cigars under the system in effect up to January 31, 2008, and the tax to be collected, if any, when cigars are sold after January 31, 2008.

Where the amount corresponding to this difference is payable, it may be refunded. Where the amount is receivable, it will have to be paid to the Minister of Revenue. Adjustments on the tobacco tax resulting from the inventory will have to be made on the returns corresponding to the periods in which cigars in stock at 0:01 a.m. on February 1, 2008, will be sold.

Examples of the calculation of the tobacco tax applicable to cigars for sales made after January 31, 2008

Note

  1. Section 2 of the Tobacco Tax Act
  2. Section 10 of the Tobacco Tax Act

Article source: http://www.revenuquebec.ca/en/centre-information/actualite/2007/2007-12-19.aspx?rss=1