To require wholesale dealers that are not also distributors of tobacco products to file new monthly informational returns with the department detailing their purchases, sales, and prices of such products.
Text of proposed rule:
Section 1. A new Part 90 is added to such regulations to read as follows:
(a)(1) Every licensed wholesale dealer of tobacco products must file with the Department of Taxation and Finance a monthly informational return on a form prescribed by the department for such purpose. Wholesale dealers that are also distributors of tobacco products will not be required to file separate informational returns. Information comparable to that required by this section will be included in the returns required to be filed by distributors pursuant to section 473-a of the Tax Law.
(2) The informational return must be filed on or before the twentieth day of each month and must reflect the wholesale dealer's activities for the preceding month, or fraction thereof. Such return must show, in addition to any other information that the department may require:
(i) the quantity, by number of cigars and number of pounds of other tobacco products, on hand at the beginning of the preceding month;
(ii) the name, address, and federal employer identification number of every person from whom cigars and other tobacco products have been purchased or otherwise acquired and the quantity and purchase price of the cigars and other tobacco products purchased or acquired from each such person during the preceding month;
(iii) the name, address, and federal employer identification number of every person, other than consumers of the subject cigars and other tobacco products, to whom cigars and other tobacco products have been sold or transferred and the quantity and selling price of the cigars and other tobacco products sold or transferred to each such person during the preceding month;
(iv) the quantity of cigars and other tobacco products otherwise disposed of, including, but not limited to, those that were not suitable for sale, destroyed, or stolen during the preceding month; and
(v) the quantity of cigars and other tobacco products on hand at the end of the preceding month.
(b) In accordance with section 474 of the Tax Law, the wholesale dealer must maintain complete and accurate records to support the information reported on the informational returns required to be filed by subdivision (a) of this section.
(c) The wholesale dealer's informational returns must be prepared and filed in accordance with the instructions provided by the department. Every return filed by or on behalf of a wholesale dealer must contain a certification to the effect that the statements in the return are true, correct, and complete. The fact that a person's name is signed on the certification of the return is prima facie evidence for all purposes that such person is authorized to sign and certify the return on behalf of the dealer and that the return was actually signed by such person.
(d) The department may, if it deems necessary in order to insure the revenue under Article 20 of the Tax Law, require returns (from all wholesale dealers or from any particular wholesale dealer) to be made at such other times and covering such other periods as it may determine.
(e) In accordance with section 480 of the Tax Law, the license of any wholesale dealer of tobacco products may be cancelled or suspended for such dealer's failure to comply with the provisions of this Part.
Section 2. These amendments shall take effect on the date that the Notice of Adoption is published in the State Register and shall apply to monthly reporting periods beginning more than 90 days after such date.
Text of proposed rule and any required statements and analyses may be obtained from:
John W. Bartlett, Tax Regulations Specialist 4, Department of Taxation and Finance, Bldg. 9, State Campus, Albany, NY 12227, (518) 457-2254, e-mail: tax_regulations@tax.state.ny.us
Data, views or arguments may be submitted to:
Same as above.
Public comment will be received until:
45 days after publication of this notice.
Regulatory Impact Statement
1. Statutory authority: Tax Law, sections 171, subd. First; 474(4); and 475 (not subdivided). Section 171, subd. First, provides the Commissioner of Taxation and Finance with the authority to make reasonable rules and regulations that may be necessary for the exercise of his or her powers and duties under the Tax Law. Section 475 provides the same authority as it relates specifically to the administration of the tobacco products excise tax imposed under Article 20 of the Tax Law, and also provides that tobacco products wholesale dealers may be required to file returns at such times and containing such information as may be prescribed. Section 474(4) provides that such wholesale dealers must maintain certain records required by the Commissioner.
2. Legislative objectives: The rule is being proposed pursuant to such authority and in accordance with the legislative objectives that the Commissioner equitably administer the provisions of the Tax Law and protect the State's tax revenues. The rule is an exercise of the Commissioner's authority to re-examine the existing policies of the Department of Taxation and Finance with respect to the tobacco products excise tax, and to prescribe a rule that, consistent with the Tax Law, will enable the Department to better ensure compliance with the provisions contained in Article 20 as described below in Section 3 of this statement.
3. Needs and benefits: The rule seeks to remedy various compliance and enforcement issues in the tobacco products excise tax. This tax is based on the wholesale price of the tobacco product and is paid “upstream” by the distributor that imported the product, then added and collected as part of the selling price along the distribution chain, and ultimately included in the retail price. Currently, both tobacco products distributors and retail dealers are required to provide the Department with certain information regarding their purchases and/or sales of tobacco products, but tobacco products wholesale dealers that are not also distributors are not required to report such information. This rule would close the informational reporting gap within the chain of distribution by requiring tobacco products wholesale dealers that are not also distributors to file new monthly informational returns with the Department detailing their purchases, sales, and prices of tobacco products for the corresponding month. The new return will enable the Department to better track the distribution as well as the wholesale price of tobacco products in New York State. The ability to track product through the distribution chain, as provided by this rule, will better enable the Department to reconcile information about tobacco products ultimately received and sold by retail dealers in an effort to ensure better compliance with the tobacco products excise tax.
4. Costs: (a) Costs to regulated parties. The regulated parties affected by this rule are approximately 140 licensed tobacco products wholesale dealers. There will be no tax liability costs to these regulated parties for the implementation of and continuing compliance with this rule. There will, however, be administrative costs associated with the requirements of the rule including the filing of a new informational return. It is estimated that it will take an affected wholesale dealer one hour and thirty minutes to learn such new requirements, one hour for recordkeeping, and one hour and thirty minutes to complete the new returns, for a total of four hours. Assuming half of the wholesale dealers will prepare the returns themselves at $15 per hour and half will use an accountant at $80 per hour, the resulting average cost for each dealer to comply during the first month will be $47.50 per hour or $190. After the first month, the cost of learning the new requirements could be reduced to zero for these wholesale dealers, resulting in compliance costs to each of them of $119 per month in the second month and thereafter.
These estimated administrative costs to the regulated parties were derived using information sources available to the Department such as tax return information and supplier reports, i.e., the new informational return is of similar complexity and captures much of the same information as the existing Distributor of Tobacco Products Tax Return.
(b) Costs to the state and its local governments including this agency. This rule will have no cost in terms of revenue impact on New York State or its local governments. It is anticipated that it will assist in achieving compliance with the tobacco products excise tax. There will be costs to this agency with regard to the implementation and continued administration of the rule. The rule will necessitate the development of the new forms at an estimated cost of $4,280. The estimated annual cost to print and mail the new returns is $11,844, which includes personal service costs of $7,584 and non-personal service costs of $4,260. Additional costs to the Department for developing a software package to capture data from the new returns, preparing test documents and reviewing test output, managing user support, and entering data on a monthly basis are estimated to be $36,744 on an annual basis.
(c) Information and methodology. This analysis is based on discussions among personnel from the Department's Office of Tax Policy Analysis, Management Analysis and Project Services Bureau, and the Office of Budget and Management Analysis.
5. Local government mandates: The rule imposes no mandates upon any county, city, town, village, school district, fire district, or other special district.
6. Paperwork: Additional reporting and paperwork requirements will be imposed on the regulated parties affected by this rule. These tobacco products wholesale dealers that are not also distributors of tobacco products will be required to file new monthly informational returns detailing their purchases, sales, and prices of tobacco products. The new returns must be filed on or before the twentieth day of each month and must reflect the wholesale dealer's activities for the preceding month. Every return must contain a certification that the information reported on it is true, correct, and complete. Further, wholesale dealers must maintain complete and accurate records to substantiate the information reported on their returns. The rule does not require wholesale dealers that are also distributors of tobacco products to file separate informational returns; they will continue to file returns as established prior to this rule.
7. Duplication: There are no relevant rules or other legal requirements of the Federal or State government that duplicate, overlap, or conflict with this rule.
8. Alternatives: The alternative to the rule is to continue not requiring monthly informational returns be filed with the Department by tobacco products wholesale dealers that are not also distributors. This approach, however, results in a gap in the informational reporting of tobacco products purchases, sales, and prices, as described in Section 3 of this statement. Since it is the intention of the Department to close this gap, no alternatives were examined, as the only way to obtain the necessary information is to require it from these tobacco products wholesale dealers.
9. Federal standards: This rule does not exceed any minimum standards of the Federal government for the same or similar subject area.
10. Compliance schedule: The rule will take effect on the date that the Notice of Adoption is published in the State Register and will apply to monthly reporting periods beginning more than 90 days after such date. The rule will require approximately 140 tobacco products wholesale dealers to file new monthly informational returns with the Department. It is estimated that 90 days will be a sufficient amount of time to enable these regulated parties to achieve compliance with this requirement.
Regulatory Flexibility Analysis
1. Effect of rule: The rule will affect approximately 140 licensed tobacco products wholesale dealers that are not also distributors of tobacco products, some of which may be small businesses as defined in section 102(8) of the State Administrative Procedure Act. The rule does not distinguish between different business sizes. It affects all of these 140 tobacco products wholesale dealers that are not also distributors in the same manner, regardless of the size of the business operation.
2. Compliance requirements: The rule will not impose any adverse economic impact or any additional reporting, recordkeeping, or compliance requirements on local governments. The rule will require all tobacco products wholesale dealers that are not also distributors, including those that are small businesses, to file new monthly informational returns with the Department, which will be due on the twentieth day of each month, and will provide information relating to the previous month's activity. See paragraphs 3, 4, and 6 of the Regulatory Impact Statement for detailed compliance requirements.
3. Professional Services: The rule itself imposes no requirements for professional services upon small businesses or local governments. However, an affected tobacco products wholesale dealer may decide that professional services, in addition to those already employed by a business in preparing its tax returns, are needed in order for the wholesale dealer to comply with the additional reporting requirements of the rule.
4. Compliance costs: There are no compliance costs to local governments as a result of this rule. With regard to the affected tobacco products wholesale dealers, during the first month that the rule is in effect it is estimated that it will take each dealer one hour and thirty minutes to learn the new requirements of the rule, one hour for recordkeeping, and one hour and thirty minutes to prepare the new returns, for a total of four hours. Assuming that half of these wholesale dealers will prepare the returns themselves at $15 per hour and half will use an accountant at $80 per hour, the resulting average cost for each dealer to comply during the first month will be $47.50 per hour or $190. After the first month, the cost of learning the new requirements could be reduced to zero, resulting in compliance costs to each wholesale dealer of $119 per month in the second month and thereafter. There are no variations in these costs for small businesses.
5. Economic and technological feasibility: The rule does not impose any economic or technological compliance burdens on small businesses or local governments.
6. Minimizing adverse impact: This rule helps to level the playing field for all tobacco products wholesale dealers, including those that are small businesses, by helping to ensure universal compliance with the tobacco products excise tax. To accomplish this, the rule requires all tobacco products wholesale dealers that are not also distributors to file monthly informational returns with the Department. Recognizing the impact of these new reporting requirements, the Department has taken the following steps to minimize any adverse effects. First, the reporting requirements of the new rule are those which are minimally necessary to close the informational gap which exists within the tobacco products distribution chain. (Closing the information gap is the purpose of the rule, as discussed in more detail in the Regulatory Impact Statement.) Second, the Department has made specific changes in the text of the rule in response to a concern raised by a representative of an industry member that, under an earlier draft of the rule, affected parties would have to report the “wholesale price” of tobacco products. “Wholesale price” is defined for purposes of the tobacco products tax as the established price for which a manufacturer sells tobacco products to a distributor. Because tobacco products can be sold multiple times at the wholesale level, the representative was concerned that the wholesale price would not necessarily be readily available to the affected parties. In response to this concern, the text of the rule was changed so that the affected parties are required to report the “purchase price” and “selling price” instead of the wholesale price, as it was agreed that this information would be readily known. Third, in developing any necessary new forms (returns), the Department has modeled them after existing returns that are already required to be filed by wholesale dealers that are also distributors of tobacco products. In comparison to the existing Distributor of Tobacco Products Tax Return, the new forms actually provide more space and an improved layout for reporting the required information. Finally, allowing for a period of at least 90 days after the rule is effective for the dealers to begin compliance with the new rule provides ample time for their planning and preparation for its implementation.
7. Small business participation: The following organizations were notified that the Department was in the process of developing this rule and were given the opportunity to participate in the its development: the Cigar Association of America, Inc.; the New York State Association of Tobacco and Candy Distributors; the Association of Towns of New York State; the Deputy Secretary of State for Local Government and Community Services; the Division of Small Business of Empire State Development; the National Federation of Independent Businesses; the New York State Association of Counties; the New York State Conference of Mayors and Municipal Officials; the Small Business Council of the New York State Business Council; and the Retail Council of New York State. The notified groups did not submit any comments concerning the rule.
Rural Area Flexibility Analysis
1. Types and estimated numbers of rural areas: The rule will affect approximately 140 licensed tobacco products wholesale dealers that are not also distributors, some of which may be located in rural areas as defined by section 102(10) of the State Administrative Procedure Act. The rule affects all of these wholesale dealers in the same way; it does not distinguish between tobacco products wholesale dealers located in rural, suburban, or metropolitan areas of this State.
2. Reporting, recordkeeping and other compliance requirements; and professional services: The rule will require all tobacco products wholesale dealers that are not also distributors, including those located in rural areas, to file new monthly informational returns with the Department, which will be due on the twentieth day of each month, and will provide information relating to the previous month's activity. See paragraphs 3, 4, and 6 of the Regulatory Impact Statement for detailed compliance requirements. Although not required, an affected wholesale dealer may determine that professional services, in addition to those already employed by a business in preparing its tax returns, may be necessary in order for the wholesale dealer to comply with the additional reporting requirements of the rule.
3. Costs: There are no variations in costs for public or private concerns in rural areas. With regard to affected tobacco products wholesale dealers located in rural areas or elsewhere, during the first month that the rule is in effect it is estimated that it will take each of them one hour and thirty minutes to learn the new requirements of the rule, one hour for recordkeeping, and one hour and thirty minutes to prepare the new returns, for a total of four hours. Assuming that half of these wholesale dealers will prepare the returns themselves at $15 per hour and half will use an accountant at $80 per hour, the resulting average cost for each dealer to comply during the first month will be $47.50 per hour or $190. After the first month, the cost of learning the new requirements could be reduced to zero for these wholesale dealers, resulting in compliance costs to each of them of $119 per month in the second month and thereafter.
4. Minimizing adverse impact: The rule does not distinguish between tobacco products wholesale dealers located in rural areas and those located elsewhere; it does not place any additional burdens on those located in rural areas. The rule helps to level the playing field for all tobacco products wholesale dealers, including those that are located in rural areas, by helping to ensure universal compliance with the tobacco products excise tax. To accomplish this, the rule requires tobacco products wholesale dealers that are not also distributors to file monthly informational returns with the Department. Recognizing the impact of these new reporting requirements, the Department has taken the following steps to minimize any adverse effects. First, the reporting requirements of the new rule are those which are minimally necessary to close the informational gap which exists within the tobacco products distribution chain. (Closing the information gap is the purpose of the rule, as discussed in more detail in the Regulatory Impact Statement.) Second, the Department has made specific changes in the text of the rule in response to concerns presented by the industry. Third, in developing any necessary new forms (returns), the Department has modeled them after existing returns that are already required to be filed by wholesale dealers that are also distributors of tobacco products. In comparison to the existing Distributor of Tobacco Products Tax Return, the new forms actually provide more space and an improved layout for reporting the required information. Finally, allowing for a period of at least 90 days after the rule is effective for the dealers to begin compliance with the new rule provides ample time for their planning and preparation for its implementation.
5. Rural area participation: The following organizations were notified that the Department was in the process of developing this rule and were given the opportunity to participate in its development: the Cigar Association of America, Inc.; the New York State Association of Tobacco and Candy Distributors; the Association of Towns of New York State; the Deputy Secretary of State for Local Government and Community Services; the Division of Small Business of Empire State Development; the National Federation of Independent Businesses; the New York State Association of Counties; the New York State Conference of Mayors and Municipal Officials; the Small Business Council of the New York State Business Council; and the Retail Council of New York State.
Job Impact Statement
Job Impact Statement is not being submitted with this rule because it is evident from the subject matter of the rule that it would have no adverse impact on jobs and employment opportunities. In fact, the rule will have a positive impact by helping to level the playing field for all tobacco products wholesale dealers and enabling them to compete more effectively for consumer sales.
The purpose of the rule is to close the informational reporting gap which currently exists because tobacco products wholesale dealers that are not also distributors of tobacco products are not required to report any information regarding their purchases, sales, and prices of tobacco products inventory. The rule amends the Tobacco Products Tax Regulations to reflect a change in current Department policy that will require these tobacco products wholesale dealers to file new monthly informational returns with the Department in order to help ensure compliance with the tobacco products excise tax.
