Questions and Answers On the Classification of Certain Little Cigars as Cigarettes

How It Affects You as a Manufacturer, Wholesaler, Subjobber, or Retailer

I have a question about:

General Questions

What is the purpose of further clarifying the definition of cigarettes?

The Department of Revenue implemented these rules because these products were incorrectly being sold as "other tobacco products" thus avoiding the Montana package size requirements and higher tax for cigarettes - making them an entry level tobacco product for young people. It has been shown that higher tobacco prices and established minimum pack sizes reduce youth initiation to tobacco. Because these rules further clarify what is a cigarette by correctly classifying certain little cigars as cigarettes, youth access to these products will be restricted.

How will the Department of Revenue determine if a little cigar is a cigarette?

The Department of Revenue will determine that a product is a cigarette as defined in the tobacco products taxation section of the Montana statute (16-11-102(2)(a) MCA) and Montana administative rules (ARM 42.31.206, 207 and 208) if it meets two or more of the following criteria:

The product is sold in packs containing 20 or 25 sticks;
The product is available for sale in cartons of ten packs;
The product is sold in soft packs, hard packs, flip-top boxes, clam shells, or other cigarette-type boxes;
The product is of length and diameter found in commercially-manufactured cigarettes;
The product has a cellulose acetate or other integrated filter;
The product weighs less than three pounds per thousand sticks;
The product is marketed or advertised to consumers as a cigarette or cigarette substitute; or
Other evidence that the product fits within the definition of cigarette in 16-11-102, MCA.

What is considered a cigar and taxed at 50% of the wholesale price?

A cigar is a roll of tobacco that is wrapped in 100% natural leaf tobacco or is wrapped in any substance that contains 75% or more tobacco, which did not in the reconstruction process lose its tobacco taste, aroma, or identifiable components and is of a color consistent with that of the natural leaf tobaccos traditionally used as a wrapper for American cigars. ARM 42.31.206(3)

Where can I find a list of little cigars that will be treated as cigarettes for tax purposes as clarified by the new rule?

You can find a list of little cigars that are classified as cigarettes for youth access and taxation purposes by clicking here. The Department of Revenue is charged with determining if a little cigar is classified as a cigarette or a tobacco product other than a cigarette for taxation purposes.

Where can I find a list of tobacco products that can be sold in Montana?

You can find a list of tobacco products that are authorized to be sold in Montana on the Department of Justice's web site. The Department of Justice is charged with establishing and maintaining a directory of tobacco products and manufacturers that are in full compliance with Montana law.

Can I sell little cigars that are classified as cigarettes for tax purposes even though they are not on the Department of Justice's directory of approved brands and brand families?

Yes. The classification of little cigars currently affects only the taxation on these tobacco products and the youth access law.

I have reviewed the list of little cigars that the Department of Revenue has determined to be cigarettes but the product that I want to sell is is not listed. How can I receive a determination on whether this product is authorized to be sold in Montana ?

As a wholesaler, subjobber or retailer you can ask the Department of Revenue to conduct a review of the product and issue a determination on whether the product is classified as a cigarette or a little cigar. When requesting this determination you are required to provide the Department of Revenue with: (a) product samples of at least 20 sticks of each style within each brand family for which a determination is requested; (b) the weight per thousand sticks of the product; (c) all advertisements and labels that mention or depict the product and point of sale merchandising material for the product; (d) the package and any larger container such as a carton, or detailed graphics for any unprinted or proposed packaging; and (e) any other relevant evidence that you would like the Department of Revenue to consider when making the determination. ARM 42.31.207(4)

What happens to my existing inventory of a product when the Department of Revenue determines that the product is a cigarette for youth access and taxation purposes?

When the Department of Revenue makes a new determination, the department will publish an updated list on its website. This list is effective upon publication. If you possess or are aware of a product that is not on the list, but you believe it should be, please contact the department and we will gather the information necessary to render a determination. You may call Jim McKeon, Miscellaneous Tax Unit Manager at (406) 444-1940 or by email at jmckeon@mt.gov.

If I am a retailer acting as a wholesaler, am I allowed to purchase little cigars directly from the manufacturer?

You can continue to purchase only those little cigars (and report and pay the tax on Form TP-101) that meet the definition of a cigar under new rule ARM 42.31.206(3). You will no longer be able to purchase little cigars that are classified as cigarettes directly from a manufacturer. Only licensed wholesalers who have been approved to affix tax stamps on cigarette products may purchase these cigarettes. As a retailer you will be required to purchase these products from a licensed wholesaler.

Will little cigars be subject to the Montana minimum price statutes and have a minimum price established for retail sales in Montana ?

No. The classification of little cigars as cigarettes affects only the taxation of these products and the youth access laws. The present definition of cigarettes for minimum price purposes does not include little cigars.

Who can I contact if I have additional questions relating to the classification of little cigars and the implementation of these rules?

If you have additional questions, please call the Department of Revenue at (406) 444-6900 or check this web site for updated information.

Implementation for Manufacturers

I am a manufacturer who produces little cigars. What products can be shipped into Montana?

You can continue to sell only those little cigars that remain classified as cigars as defined in new rule ARM 42.31.206(3) after July 1, 2007. However, after July 1, 2007 little cigars that are classified as cigarettes as defined in new rule ARM 42.31.206 may be sold by a manufacturer to a licensed Montana wholesaler in packs of 20 or 25 only.

I have reviewed the list of little cigars that the Department of Revenue has determined to be cigarettes but my product is not listed. How can I receive a determination on whether my product is authorized to be sold in Montana?

As a manufacturer you can request that the Department of Revenue determine whether your product is a cigarette as defined in ARM 42.31.206 by providing the Department of Revenue with: (a) product samples of at least 20 sticks of each style within each brand family for which a determination is requested; (b) the weight per thousand sticks of the product; (c) all advertisements and labels that mention or depict the product and point of sale merchandising material for the product; (d) the package and any larger container such as a carton, or detailed graphics for any unprinted or proposed packaging; and (e) any other relevant evidence that you would like the Department of Revenue to consider when making the determination. ARM 42.31.207(4)

If a little cigar is classified as a cigarette in Montana for the tax and youth access purposes, am I required to comply with the federal warning labeling requirements for cigarettes on these products?

No. Montana 's statutes on federal labeling require cigarettes or tobacco products to comply with federal regulations and labeling. The federal regulations in this instance currently do not require products that meet the federal definition of little cigar to have the cigarette warning label.

Implementation for Wholesalers

I am a wholesaler who currently has an existing inventory of little cigars. Can I continue to sell my existing inventory after July 1, 2007?

Your inventory of little cigars that are classified as cigarettes can continue to be sold to Montana retailers if the Montana cigarette tax of $1.70 per pack of 20 cigarettes has been paid, the individual packs of cigarettes have the Montana tax stamp affixed and they are sold in packs containing 20 or 25 sticks. The determination that little cigars are considered cigarettes for Montana purposes does not affect your distribution of these products to any retailer outside the State of Montana . Little cigars that are determined to be cigars as defined in ARM 42.31.206 can continue to be sold by the wholesaler to a Montana retailer. However, after July 1, 2007 you can no longer sell to a Montana retailer any little cigars that have been classified as cigarettes that are marketed in packs containing anything less than 20 sticks, including individual sticks or 5, 8, or 10 stick packs. These products are in violation of the youth access laws.

We encourage you to work with your retailers between now and July 1, 2007, to ensure that they are in compliance with the Department of Revenue's implementation plan on the clarification and classification of little cigars.

As a wholesaler, I report my cigarette inventory to the Department of Revenue on Form CT -205 and my other tobacco products on Form TP-101. I have normally reported and paid the tax on my little cigar purchases on Form TP-101. How will I report and pay my tax on little cigars after July 1, 2007?

Little cigars that remain classified as a cigar as defined in new rule ARM 42.31.206 will continue to be reported on Form TP-101. The tax on these products remain at 50% of the wholesale price and the tax is paid at the time Form TP-101 is filed. Little cigars that are classified as cigarettes will now be reported on Form CT-205 Section 1 and included in your cigarette reconciliation along with all other cigarettes. There is no need to separately state your little cigar purchases and other cigarette purchases on Form CT-205 Section 1, as both products are considered cigarettes for taxation purposes. However you will list them separately by brand on Schedule A of Form CT-205.

As a wholesaler, I am also required to file a Montana Licensed Wholesaler Reporting Form with the Department of Justice reporting little cigars that have been stamped or sold. How will I report my little cigars to the Department of Justice after July 1, 2007?

The classification of a little cigar by the Department of Revenue will not affect the way you report your tobacco products to the Department of Justice. You will continue to report your little cigars on the Department of Justice's reporting form by listing the brand name, non-participating manufacturer name, invoice number and the quantity under the column titled "No. of Little Cigars Stamped or Sold."

How will I receive a credit for taxes previously paid on Form TP-101 for little cigars products that are being returned from a retailer because they are classified as cigarettes?

The Department of Revenue is aware that you have already paid a tax on these products at 50% of the wholesale price. Therefore, when submitting your July Form TP-101, you will need to complete Section 3 for products that were returned to the manufacturer in order to receive your credit. When requesting this credit, be sure to provide documentation of the product returned from the retailer and the subsequent credit given to the retailer.

Implementation for Subjobbers and Retailers

I am a retailer who currently has an existing inventory of little cigars. Can I continue to sell my existing inventory after July 1, 2007?

You can continue to sell little cigars that remain classified as cigars as defined in new rule ARM 42.31.206 after July 1, 2007.

However, please read carefully the following information on how to treat your inventory of little cigars that are classified as cigarettes as defined in new rule ARM 42.31.206.

If you currently have little cigars that are now classified as cigarettes that were purchased before June 18, 2007, the Department of Revenue will provide you with the opportunity to continue to sell your existing inventory until July 18, 2007. In order to qualify for this grace period, you will need to be able to show that this inventory was purchased before June 18, 2007 and that you have not ordered or purchased any additional little cigars that do not meet the requirements of these new administrative rules after June 18, 2007.
If you are unable to dispose of your existing inventory by July 18, 2007, you may request an additional period of up to two more weeks to sell these products before they are considered contraband. In order to receive this extension, you will need to call Jim McKeon, Miscellaneous Tax Unit Manager at (406) 444-1940 or by email at jmckeon@mt.gov.
Little cigars that are classified as cigarettes as defined in new rule ARM 42.31.206 and purchased after June 18, 2007 may not be sold or remain on your premises after July 1, 2007, unless they are in packs of 20 or 25 and the Montana tax stamp is affixed.

In order to be granted an extension to sell your existing inventory, you will be required to have available for review by the Departments of Justice and/or Revenue invoices that clearly identify the product purchased and the date the product was purchased and sign an affidavit affirming that no additional purchases of little cigars that do not meet the requirements of these new rules were purchased after June 18, 2007.