NOTICE: Under IC 4-22-7-7, this document is required to be published in the Indiana Register and is effective on its date of publication. It shall remain in effect until the date it is superseded or deleted by the publication of a new document in the Indiana Register. The publication of this document will provide the general public with information about the Department's official position concerning a specific issue.

Tobacco Products Tax – Application of Tobacco Products Tax to Distribution of Tobacco Products

A company ("Taxpayer") is seeking an opinion as to whether, and under what terms or conditions, a distributor can sell and distribute "untaxed" tobacco products ("OTP") to Taxpayer in Indiana, as part of an interstate transaction for eventual shipment to Taxpayer's retail stores located both within Indiana and other states.

Authority: IC 6-7-2-2; IC 6-7-2-7; IC 6-7-2-14.

Taxpayer provides the following facts regarding its request for a revenue ruling. Taxpayer, which is located in Indiana, services retail stores both within and outside of Indiana. Taxpayer holds an appropriate distributor's and/or wholesaler's license in each of the states in which it operates, including Indiana. Taxpayer further provides that:

Distributor is located outside of Indiana, but holds an appropriate Indiana distributor's license and provides services to many Indiana retailers. Taxpayer would like to enter into a relationship with Distributor, which Taxpayer describes thusly:

Taxpayer requests that the Department rule whether, and under what terms or conditions, Distributor can sell and distribute "untaxed" tobacco products to Taxpayer in Indiana, as part of an interstate transaction for eventual shipment to Taxpayer's retail stores located both within Indiana and other states.

Tax is imposed in Indiana on the distribution of OTP pursuant to IC 6-7-2-7, which provides:

Distributor and Taxpayer are both distributors under the law. As stated previously, IC 6-7-2-7 imposes tax on OTP when any one of three conditions has been met, when a distributor (1) brings or causes tobacco products to be brought into Indiana for distribution; (2) manufactures tobacco products in Indiana for distribution; or (3) transports tobacco products to retail dealers in Indiana for resale by those retail dealers.

However, IC 6-7-2-14 provides:

In the instant case, if the Department were to impose tax on Distributor, and Taxpayer subsequently shipped some OTP outside Indiana (as it intends to do), Distributor, which would be the entity properly situated to request a refund pursuant to IC 6-7-2-14, would have no way of knowing which OTP was shipped outside Indiana. Only Taxpayer would possess such information, but Taxpayer would not be properly situated to request the applicable refund.

Clearly, IC 6-7-2-7 provides, and the Department recognizes as a general rule, that liability is imposed on a distributor that brings or causes tobacco products to be brought into Indiana for distribution. However, to read IC 6-7-2-7 as requiring the Department in the instant case to assess tax when such a condition has been met would lead to absurd results. Rigid application of the provision would result in Taxpayer, as the end-distributor, being the only entity possessing information necessary to request a refund pursuant to IC 6-7-2-14. However, Distributor, not Taxpayer, would be the entity situated to request any applicable refund. Therefore, because the Department will not interpret a statute in such a way as to render it absurd, the Department recognizes the following limited exception to the statute. In situations where an out-of-state licensed Indiana OTP distributor distributes such product to an in-state licensed Indiana OTP distributor that subsequently distributes any part of the product out of Indiana, the Department shall assess tax on the end-distributor.

Distributor can sell and/or distribute "untaxed" tobacco products to Taxpayer in Indiana, provided Distributor complies with the reporting requirements of IC 6-7-2-16. Tax is imposed on Taxpayer at the time Taxpayer purchases the products from Distributor, and should be remitted monthly to the Department on Taxpayer's monthly return (Form OTP-906).

This ruling is issued to the taxpayer requesting it on the assumption that the taxpayer's facts and circumstances as stated herein are correct. If the facts and circumstances given are not correct, or if they change, then the taxpayer requesting this ruling may not rely on it. However, other taxpayers with substantially identical factual situations may rely on this ruling for informational purposes in preparing returns and making tax decisions. If a taxpayer relies on this ruling and the Department discovers, upon examination, that the fact situation of the taxpayer is different in any material respect from the facts and circumstances given in this ruling, then the ruling will not afford the taxpayer any protection. It should be noted that subsequent to the publication of this ruling a change in statute, regulation, or case law could void the ruling. If this occurs, the ruling will not afford the taxpayer any protection.