Mr. Robert S. Calvert Opinion No. W-964
Comptroller of Public Accounts
Capitol Station Re: Basic upon which tax on
Austin, Texas cigars levied by Art.
8.02(b) and (c). Title
122A, Taxation-General,
R.C.S., should be cal-
Dear Mr. Calvert: culat.ed.
Your letter requesting an opinion upon the referenced
topic sets out pertinent details relating to the question and
we therefore quote.3.t in full, as follows:
“Request is hereby made for a formal
opinion as to the proper interpretation
of Article 8.01, et seq., Taxation-
General, V.A.T.S., concerning the
measure of the tax to be applied to the
sale of cigars and tobacco products in
this state.
“As you know, all excise taxes levied
in this state are collected by the
person making the taxable sale. Thus,
a tax imposed on a retail sale is
collected by the retailer and a tax
levied on the first sale Is collected
by the distributor.
“The cigar tax is levied on the Pirst
sale in Texas and is collected by the
distributor. Thus, Article 8.02,
TaxatloniGeneral, V.A.T.S., provides In ‘.’
part as follows:
“‘There is hereby levied a tax upon
the “first sale” of cigars and tobaoco
products as those terms are defined by
the following schedule:
. . . .t
:_i
: :
Mr. Robert S. Cal&t, Page 2 (Opinion No. w-964)
“Article 8.03, Taxation-General, V.A.T.S.,
provides in part as follows:
“‘The tax levied herein shall be paid
only once to the Stata Treasur.er by the
person making the “first sale”. In this State. 1
“The language of the foregoing statutes is
clear and there is no difficulty in deter-
mining that the taxable event with respect
to the cigar and tobacco products tax is
the first sale In Texas, and that the dls-
trlbutor is the party obligated to collect
same and pay it over to the State.
“The problem arises, however, as to the
measure of the tax so payable. In all other
statutes, the tax Is measured by the amount
of the sale which is considered the taxable
event. In the case of firstsales, the measure
is the amount of the first sale -- either by
quantity or by price. In the case of retail
sales, the measure Is the price of the sale.
“With respect to the cigar and tobacco products
tax the language Is not. clear as to the measure
of the tax. In the usual situation, cigars
are shipped Into this state by the manufacturer
to a distributor who sells them to a retailer.
The words of the statute are as follows:
. . . .
“l(b) Upon cigars of all descriptions weighing
more than three (3) pounds per one thousand
(1,000) retailing for not more than three and
three-tenths cents (3. $8) each, seven dollars.
and fifty cents ($7.50 3 ‘per one thousand (1,000).
I”(c) Upon cigars of all descriptions weighing
more than three (3) pounds per one thousand
.(l,OOO), retailing for over three and three-
tenths cent8 (3.34) each, fifteen dollars
($15.00) per one thousand (l,OOO).’
“We have .conatrued the Incidence of tax to be
imposed upon the distributor based upon the
price at which It is anticipated that the
retailer will sell the cigars. In other words,
Mr. Robert S. Calvert, Page 3 (Opinion No. W-964)
under our present Interpretation of the statute
the tax Is not paid by the distributor based
upon the price for which he sells the cigars to
the retailer, but upon the price at which he
anticipates that the retailer will sell the
cigars.
“With regard ~to our present Interpretation,
we understand that the distributor or the manu-
facturer cannot dictate the price at which the
cigars should be sold at retail because of our
anti -trust laws. Thus, under our present
Interpretation, the distributor is required to
pay the tax only upon an informed guess of what
the retail price may be. We are informed by
the Industry that as a result of our lnter-
pretatlon no cigars fall within the tax pres-
cribed in Article 8.02(b).
"Your opinion Is therefore respectfully re-
quested as to whether the tax on cigars should
be based upon the price for which the cigars
are resold by the distributor to the ‘retailer,
or whether it should be based upon the anti-
cipated price for which the cigar Is retailed
by the retailer.”
It Is our opinion that the tax described should be
based upon the price for which the distributor sells tve cigars
to the retailer. ! .,,I
t.
The taxable incident here Is the “first sale” of
cigars within the State. “Piret sale” la defined by Art.
8.01(h) as follows:
“(h) The words ‘Flrst Sale’ shall mean and
Include the first sale or distribution of
cigars or tobacco products In Intrastate
commerce in the State of Texas or the first
use or consumption of cigars or tobacco
products within this State.”
The distributor making this first sale is required to
remit the tax due on the transaction (Art. 8.03), and to
accompany these remittances with reports to your office on or
before the tenth of each month. (Art. 8.04).
Art. 8.03(b) and (c), quoted above In your letter,
sets up.two classifications of cigars weighing more than three
pounds per 1,000 for the purpose of measuring the tax due:
Mr. Robert S. Calvert, Page 4 (Opinion No. w-964)
those “retailing” for not more than 3.34 each and those
“retailing” for over 3.34 each. 1 The term ~‘retalllng” 1s
not defined. The normal connotation of theterm “retailing”
would Indicate the amount paid by the ultimate consumer pur-
. chasing these cigars from the retail dealer. However, such
an Interpretation in this case separates the tax base, or the
factor upon which the tax Is calculated, from the taxable
Incident, which 1s the “first sale”. If this Interpretation
were followed, the distributor would be forced to collect a
tax measured by the terms of an event which has no occurred;
that Is, the retail sale to the. ultimate consumer. 8 He can
only guess at what price the cigar will ultimately be sold,
and pay the tax accordingly. Because the report and remittance
of tax must be made soon after his sale to the retailer, the
measuring event (sale at retail) may aotually occur after the
tax has .already been remitted. Further, we understand that
the tax 1s tnrmally “passed on”; that Is, that the distributor
simply adds the amount of the tax to the price paid him by the
retail dealer, Such collection would also of course have to
be made upon a projected estimate of the price at which the
cigars In question will finally be sold. Such a construction
might well render the tax statute so vague as to make It un-
constitutional and void. Western Union Telegraph Co. v. State
of Texas, 62 Tex. 639, (1884) However, if we interpret the
term “retailing” to mean the price at which the cigars are sold
to the retail dealer by the distributor, ‘the uncertainty Is
removed. The measuring base coincides with the taxable Incident,
and the amount of:tax is .fixed as of that time. This Is ob-
vlously the moat reasonable, If not the only praotlcal, lnter-
pretatlon of the Article. It la settled that, to enable a
reasonable lnterpretatlon of legislative lntent’,words lna
statute may be glvsn a possible, though unusual, meaning. State
v. Pioneer Oil & Refining Co., 292 S.W. 869 (Tex.Com.App. im
As further substantiation of this view, we note; your
statement that, under the present interpretation. basing the tax
.rate on retail Sal98 price, no olgars fall within the tax
presoribed In Art. 8.02(b); that is, the lower of the two tax
i
These ari the Only two ClaSSlflCatlOnS of Cigars in which price
1s a factor in determination of the tax due.
2
As you point out,.the dlstrlbutor or manufacturer may not
dictate the mandatory retail price of a olgar because of the
1nhibltlor.k of our anti-trust laws.
- .
Mr. Robert S. Calvert, Page 5 (Opinion No. w-964)
classlflcatlons under consideration. This would constitute Art.
&02(b) worthless leglslatlon and, as has often been said, the
Legislature will not be presumed to have done a vain thing.
Greene v. Roblson, 109 Tex. 367, 210 S.W. 498 (1919). If we
measure the tax by the price paid upon the first sale, however,
both provlalons of the Article come Into play In classlfi.catlon
for tax purposes and have meaning.
SUMMARY
The tax on olgare levied by Art. 8.02(b)
and (c), Title 122A, Taxation-General, R.C.S.,
should be calculated upon the price received
by the distributor or person making the "first
sale" of the cigars in Intrastate commerce and
not upon the price at which such cigars are
ultimately sold at retail.
Yours very truly,
WILL WILSON
Attorney General of Texas
JR1:jp
APPROVED:
OPINION COMMITTEE:
W. V. Geppert, Chairman
Bill Allen
Martha Joe Stroud
Joe McMaster
REVIEWEDFOR THE ATTORNEY
GENERAL
By: Leonard Passmore