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  • » ANN 2002-19
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    August 30, 2002
    RE: Act 246, Session Laws of Hawaii 2002 (Act 246), Relating to the Cigarette and Tobacco Tax
    *** NOTE: This Announcement supplements Announcement 2002-16 ***

    Act 246 increases the excise tax on cigarettes from 5 cents per cigarette to:

    Act 246 became effective on July 1, 2002.

    The tax is collected by the Department of Taxation (Department) when cigarette and tobacco wholesalers and dealers purchase cigarette tax stamps and place the stamps on cigarette packs prior to distribution. The current cigarette tax stamps are green; new yellow tax stamps will be issued to implement the increase in the tax rate.1

    Impact on Consumers
    Consumers will see cigarette packs with green stamps and cigarette packs with yellow stamps. It is legal for retailers to sell cigarette packs with the green stamps on or after October 1, 2002.

    Impact on Retailers
    Retailers must sell cigarette packs with either green stamps or the new yellow stamps affixed.

    Retailers may sell cigarette packs stamped with the current green tax stamps if: (1) the retailers have the cigarette packs in their inventory on or after October 1, 2002; or (2) the cigarette packs were received from licensed wholesalers and dealers on or after October 1, 2002. Retailers may have to explain to consumers the reason for the different colored stamps.

    Act 246 does not require retailers, who purchase cigarettes from licensed wholesalers and dealers, to collect the increase in cigarette taxes on October 1, 2002, as the tax is imposed on wholesalers and dealers. Retailers may pass on the additional tax to consumers when wholesalers and dealers pass on the additional tax to the retailers.

    Impact on wholesalers and dealers
    Act 246 requires every wholesaler and dealer to pay a tax of 6 cents per cigarette for each cigarette sold, used, or possessed on October 1, 2002.

    Yellow stamps will be sold beginning on October 1, 2002, to implement the new tax rate. In order to avoid wholesalers and dealers returning unused green stamps and cigarette packs with green stamps, the Department will require a Form M-107 (floor stock return) from all wholesalers and dealers. The purpose of the floor stock return is to collect the difference in price between the green stamp (current stamp) and yellow stamp (new stamp) for every unused or affixed stamp in the wholesalers and dealersí ending inventory on September 30, 2002.

    Once the floor stock return has been filed and the difference in the tax has been paid, the green stamps may be used until depleted. Wholesalers and dealers, therefore, may affix green stamps to cigarette packs after October 1, 2002.

    The stamp fee imposed under section 245-26, HRS, 2 and the discount provided under section 245-22, HRS, 3 will be applicable to the difference in the tax reported on the floor stock return.

    The yellow stamps will be available for purchase on October 1, 2002. The price of a roll from October 1, 2002, will be: $1.2156 * 15,000 = $18,234.

    Wholesalers and dealers purchasing stamps on a deferred payment plan may increase the amount of their deferred payment purchases by 20%. No increase in bond coverage is necessary for the October 1, 2002, rate increase.

    The Department will be revising the cigarette and tobacco tax forms in accordance with Act 246.

    Current forms and other tax information are available at the Departmentís website at: On Oahu, forms may be ordered by calling the Departmentís Forms Request Line at: 587-7572. Persons who are not calling from Oahu, may call: 1-800-222-7572 (toll-free) to receive forms by mail or by fax.

    Director of Taxation
    HRS Section Explained: HRS Sections 245-3, 245-22, and 245-26.

    1 The denominated value of the green stamp is $1.00; the denominated value of the yellow stamp will be $1.20.
    2 Section 245-26(a), HRS, provides: Stamps shall be sold at their denominated values, plus a stamp fee of 1.7 per cent of the denominated value of each stamp sold, composed of the aggregate of:
    1. .2 per cent of the denominated value of the stamp to pay for the cost to the State of providing the stamps, with such amount to be deposited to the credit of the department of taxation's cigarette tax stamp administrative special fund; and
    2. 1.5 per cent of the denominated value of the stamp to pay for the cost of enforcing the stamp tax, with such amount to be deposited to the credit of the department of the attorney general's cigarette tax stamp enforcement special fund;
    provided that the department of taxation by rule may modify the stamp fee to reflect actual costs incurred by the State in providing the stamps.
    3 Act 270, Session Laws of Hawaii 2001, allows stamps to be sold with a 0.4 percent discount to defray the cost of affixing the stamps incurred by vendors. The Department may adjust the discount by rule. The discount is effective beginning September 1, 2001.