What amount is the Kansas 10% tobacco products tax charged on — and can a distributor deduct discounts?

Plain-English summary

A tobacco products distributor asked what the Kansas tobacco tax is charged on. The Department set out the framework:

• K.S.A. 79-3371 imposes a tax on the privilege of selling or dealing in tobacco products in Kansas by a distributor, at 10% of the wholesale sales price. The tax applies when the distributor brings tobacco products into Kansas for sale, makes them in Kansas for sale here, or ships/transports them to Kansas retailers.
• K.S.A. 79-3370(g) defines "wholesale sales price" as the original net invoice price for which a manufacturer sells a tobacco product to a distributor, as shown by the manufacturer's original invoice.

Applying those, the Department ruled the 10% tobacco tax should be imposed on the amount shown on the manufacturer's original invoice without consideration for the display-unit discount. However, it is appropriate to deduct the cash discount in determining the base subject to the Kansas tobacco tax.

What this means for you

If you are a Kansas tobacco products distributor, base the 10% tax on the manufacturer's original invoice price — and be careful about which discounts reduce that base.

• Tax base = manufacturer's original net invoice price to the distributor (the "wholesale sales price").
• Display-unit discount: not deductible. Do not reduce the base for a display-unit discount; the tax still applies to the original invoice amount.
• Cash discount: deductible. You may subtract the cash discount when figuring the taxable base.
• Rate: 10% of the wholesale sales price on tobacco products (this is the tobacco products tax, separate from sales tax).

Common questions

What is the Kansas tobacco products tax rate?
Under K.S.A. 79-3371, it is 10% of the wholesale sales price for a distributor.

What counts as the "wholesale sales price"?
Per K.S.A. 79-3370(g), the original net invoice price the manufacturer charges the distributor, as shown on the manufacturer's original invoice.

Can a distributor deduct a display-unit discount?
No. The Department ruled the tax applies to the original invoice amount without reducing it for a display-unit discount.

Can a distributor deduct a cash discount?
Yes. The Department said it is appropriate to deduct the cash discount in determining the base subject to the Kansas tobacco tax.

Citations and references

• K.S.A. 79-3371 — imposes the Kansas tobacco products tax at 10% of the wholesale sales price on a distributor selling or dealing in tobacco products in the state.
• K.S.A. 79-3370(g) — defines "wholesale sales price" as the original net invoice price for which a manufacturer sells a tobacco product to a distributor, per the manufacturer's original invoice.

Source

• Original ruling (DOCX): https://www.ksrevenue.gov/pildocs/rulings/P-1998-03.docx
• Kansas Policy Information Library: https://www.ksrevenue.gov/prpil.html

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

January 16, 1998

XXXXXXXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXX

Dear XXXXXXX:

We wish to acknowledge receipt of your letter dated December 23, 1997, regarding the application of Kansas Tobacco Tax.

K.S.A. 79-3371 imposes a tax: “. . . upon the privilege of selling or dealing in tobacco products in this state by any person engaged in business as a distributor thereof, at the rate of ten percent (10%) of the wholesale sales price of such tobacco products. Such tax shall be imposed at the time the distributor (a) brings or causes to be brought into this state from without the state tobacco products for sale; (b) makes, manufactures, or fabricates tobacco products in this state for sale in this state; or (c) ships or transports tobacco products to retailers in this state to be sold by those retailers.”

The wholesale sales price is defined in K.S.A. 79-3370(g) as “. . . the original net invoice price for which a manufacturer sells a tobacco product to a distributor as shown by the manufacturer’s original invoice. . .”

Therefore, it is the opinion of this department that the ten percent (10%) tobacco tax should be imposed upon the amount shown on the manufacturer’s original invoice to your customer, without consideration being given for the display unit discount. However, it would be appropriate for you to deduct the cash discount in determining the base that would be subject to the Kansas Tobacco Tax.

If I may be of further assistance, please contact me at your earliest convenience at (913) 296-7776.

Sincerely yours,

Thomas P. Browne, Jr.
Tax Specialist

TPB

Date Composed: 01/22/1998 Date Modified: 10/10/2001

Table 1

Table 2