May an Illinois licensed cigarette distributor also sell stamped cigarettes directly to retail customers?

Plain-English summary

Illinois declined to issue the requested PLR but explained when a cigarette distributor could also make retail sales.

A distributor covered by the first statutory definition of "distributor" and licensed under Section 4 of the Cigarette Tax Act could make retail cigarette sales. It had to comply with every requirement applicable to distributors and retailers.

Stamps and inventory location

Distributors collected cigarette tax from retailers, affixed stamps, and remitted the tax. The tax amount had to be separately stated on bills and invoices.

A stamp had to be applied before shipment to an Illinois retailer. A licensed distributor could move unstamped packages to a facility it owned or controlled, but not to a facility where retail cigarette sales occurred. Thus a distributor's retail location could not hold unstamped packages, even if the distributor planned to stamp them later.

Some manufacturer-distributors could not sell to retailers

The GIL says in-state manufacturers licensed as distributors under Section 4 and out-of-state manufacturers holding Section 4b permits could not sell original cigarette packages to retailers. Retailers could obtain packages from licensed secondary distributors or other licensed distributors described in the letter.

Retail sales also triggered ordinary retailer duties

A distributor making retail cigarette sales had to register under the Retailers' Occupation Tax Act, collect and remit tax, and file returns.

The GIL also says distributors under the Tobacco Products Tax Act could sell tobacco products directly to consumers, with the corresponding tobacco-products and retailer obligations.

What this means for you

Cigarette distributors adding a retail counter

Confirm which statutory distributor category and license applies. Keep unstamped inventory out of the retail-sales facility and comply with both cigarette-distributor and retail sales-tax rules.

Tobacco-product distributors

Direct consumer sales were permitted under the provisions cited, but the distributor also had to register and comply with Retailers' Occupation Tax.

Common questions

Q: Could a licensed distributor sell cigarettes to consumers?
A: Yes for the distributor category and Section 4 license described in the GIL.

Q: Could the retail location contain unstamped cigarettes?
A: No.

Q: Did retail cigarette sales require ordinary sales-tax registration?
A: Yes. The distributor had to register, collect, remit, and file under the Retailers' Occupation Tax Act.

Citations and references

• 35 ILCS 130/2 — collection, stamping, remittance, and separately stated cigarette tax.
• 35 ILCS 130/3 — stamping before shipment and restrictions on unstamped packages at retail facilities.
• 35 ILCS 130/4, 4b, and 4d — distributor and manufacturer categories and retail-sale restrictions.
• 35 ILCS 143/10-5 and 10-10 — tobacco-products distributors and direct consumer sales.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2011.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2011/st-11-0090.pdf

Original ruling text

ST 11-0090-GIL 10/17/2011 CIGARETTE TAX
This letter concerns cigarette distributors that make retail sales of cigarettes. See 35 ILCS
130/2, 3 and 4b. (This is a GIL.)

October 17, 2011

Dear Xxxxx:
This letter is in response to your letter dated August 12, 2011, in which you request
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a
tax statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
COMPANY respectfully requests a Private Letter Ruling regarding COMPANY’s ability
to sell cigarettes to end-users as a holder of primary cigarette distributor licenses.
Currently, COMPANY has six locations that have a primary cigarette distributor license
in the State of Illinois. Please see the attached list. These locations affix tax stamps to
cigarettes. Accordingly, a primary cigarette distributor license is necessary as defined
in 86 Illinois Administrative Code 440.5. However, these locations also act as a retailer
because they sell stamped cigarettes to end-users.
Based on our understanding, a primary cigarette distributor cannot sell to end-users
unless granted special permission by the Illinois Department of Revenue.
Therefore, COMPANY respectfully requests permission by the Illinois Department of
Revenue to allow the six COMPANY locations on the attached list to be able to sell
stamped cigarettes to end-users.
Thank you for your time and consideration regarding this request. Please feel free to
contact me if you have any questions or concerns. I look forward to hearing from you
soon.

DEPARTMENT’S RESPONSE:
The Department’s regulation “Public Information, Rulemaking and Organization” provides that
“[w]hether to issue a private letter ruling in response to a letter ruling request is within the discretion of
the Department. The Department will respond to all requests for private letter rulings either by
issuance of a ruling or by a letter explaining that the request for ruling will not be honored.” 2 Ill. Adm.
Code 1200.110(a)(4). The Department declines to issue a Private Letter Ruling. Although we are not
providing you with a Private Letter Ruling, we hope the following general information will be of
assistance.
Cigarette Tax Act
The Cigarette Tax Act requires distributors to collect the cigarette tax from retailers at or before
the time of the sale, affix tax stamps, and remit the tax collected from retailers to the Department.
The amount of the Cigarette Tax imposed by the Act must be separately stated, apart from the price
of the goods, by distributors and retailers, in all bills and sales invoices. 35 ILCS 130/2.
Prior to shipment to an Illinois retailer, a stamp must be applied to each original package of
cigarettes sold to the retailer. A licensed distributor may transport unstamped original packages of
cigarettes to a facility, wherever located, owned or controlled by such distributor; however, a
distributor may not transport unstamped original packages of cigarettes to a facility where retail sales
of cigarettes take place. 35 ILCS 130/3.
In-state manufacturers licensed as distributors under Section 4 of the Act and out-of-State
manufacturers holding permits under Section 4b of this Act may not sell original packages of
cigarettes to retailers. A retailer may sell only original packages of cigarettes obtained from licensed
secondary distributors or licensed distributors other than in-state manufacturers licensed as
distributors under Section 4 of the Act and out-of-State manufacturers holding permits under Section
4b of the Act. 35 ILCS 130/4d.
A distributor of cigarettes in this State within the meaning of the first definition of “distributor” in
Section 1 of Cigarette Tax Act possessing a license under Section 4 of the Act may make retail sales
of cigarettes. If a distributor makes retail sales of cigarettes, the distributor must comply with all
requirements in the Act regarding purchase and sales of cigarettes by distributors and retailers. For
example, a location from which retail sales are made by the distributor may not have unstamped
packages of cigarettes at the location, regardless of whether the distributor intends to subsequently
place stamps on such packages of cigarettes.
Distributors making retail sales of cigarettes must also register under the Retailers’ Occupation
Tax Act, collect the Retailers’ Occupation Tax, remit the tax and file returns with the Department.
Other Tobacco Products
The Tobacco Products Tax Act of 1995 contains a number of categories of “distributor” for
purposes of administering the Tobacco Products Tax Act. The first paragraph of the definition states
that a “distributor” means “[a]ny manufacturer or wholesaler in this State engaged in the business of
selling tobacco products who sells, exchanges, or distributes tobacco products to retailers or
consumers in this State. 35 ILCS 143/10-5 (emphasis added). The second paragraph of the
definition states that a “distributor” means “[a]ny manufacturer or wholesaler engaged in the business
of selling tobacco products from without this State who sells, exchanges, distributes, ships, or
transports tobacco products to retailers or consumers located in this State, …” Id. (emphasis added).

The Act also requires distributors to remit the tax to the Department on sales of tobacco products
made directly to consumers. 35 ILCS 143/10-10.
Based on language contained in the Tobacco Products Tax Act, distributors may make retail
sales of tobacco products to employees and customers.
Distributors making retail sales of tobacco products must also register under the Retailers’
Occupation Tax Act, collect the Retailers’ Occupation Tax, remit the tax and file returns with the
Department.
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.

Very truly yours,

Richard S. Wolters
Associate Counsel
RSW:msk