Could a licensed Virginia cigarette stamping agent hire another company to physically affix stamps to the agent's own cigarettes?

Subject

Licensed stamping agent could use a contract affixer while retaining responsibility

Plain-English summary

Virginia allowed a licensed stamping agent to hire another company to affix revenue stamps to cigarettes owned by the stamping agent. The agent would purchase the stamps directly from the Department and send both its cigarettes and stamps to the contractor.

The arrangement did not violate Va. Code § 58.1-1009 because the contractor did not buy the stamps, title to the stamps never passed to it, and it handled them only as the stamping agent's contract agent.

The ruling did not transfer regulatory responsibility. The licensed stamping agent remained responsible for every statutory requirement and remained exposed to permit revocation and civil or criminal penalties for noncompliance.

What this means for you

• Physical affixing could be contracted out under the precise ownership and agency facts presented.
• The cigarette owner had to purchase the Virginia stamps from the Department.
• The contractor could possess the stamps without taking title to them.
• Outsourcing the work did not outsource the stamping agent's statutory duties or liability.

Common questions

Could the contractor purchase the stamps from the stamping agent?

No. The ruling depended on the contractor not purchasing the stamps and never receiving title.

Who remained responsible if statutory rules were violated?

The licensed stamping agent retained all statutory responsibilities.

Citations and references

• Va. Code §§ 58.1-1009 and 58.1-1011.
• Chapter 10 of Title 58.1 of the Virginia Code, as cited in the ruling.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-69

Original ruling text

May 13, 2009

Re: Ruling Request: Cigarette Tax

Dear *:

This is in response to your letter requesting a ruling regarding whether a licensed stamping agent (the "Stamping Agent") may hire another company (the "Affixer") to affix Virginia revenue stamps purchased by the Stamping Agent to cigarettes owned by the Stamping Agent.

FACTS

The Stamping Agent is a * corporation that plans to apply for a Virginia stamping agent permit. Once it has obtained the Virginia permit, the Stamping Agent plans to purchase cigarettes directly from the manufacturer and have them shipped to the Affixer. The Stamping Agent would purchase the Virginia revenue stamps and transfer possession of the stamps to the Affixer as a contract agent of the Stamping Agent. The Affixer would apply the stamps to the Stamping Agent's cigarettes on a contract basis and transport the cigarettes to retail stores in the Commonwealth.

The Affixer requests a ruling regarding the legality of this proposal.

RULING

Va. Code § 58.1-1009 directs the Department of Taxation ("TAX") to prepare and sell stamps suitable for denoting the tax on all cigarettes. Virginia revenue stamps are only provided by TAX to manufacturers, wholesale dealers, and retail dealers qualifying as stamping agents under Va. Code § 58.1-1011. Va. Code § 58.1-1009 provides that:

[a]ny person other than the Department who sells such revenue stamps, not affixed to cigarettes sold and delivered by them, whether the said stamps be genuine or counterfeit, shall be guilty of a Class 6 felony. Any person who purchases revenue stamps from anyone other than the Department, unless such stamps are already affixed to cigarettes being purchased by and delivered to him, or who uses or affixes, or causes to be used or affixed, any revenue stamps not purchased from the Department by the owner of the cigarettes being handled or stamped, whether such stamps are genuine or counterfeit, shall be guilty of a Class 6 felony.

The proposal contemplated by the Stamping Agent and the Affixer would result in a licensed stamping agent purchasing Virginia revenue stamps to be affixed to its own cigarettes. The Affixer would only handle the Virginia revenue stamps as a contract agent of the Stamping Agent and would not purchase the stamps from the Stamping Agent, nor would title to such revenue stamps ever pass to the Affixer. Based on the foregoing, the proposal contemplated by the Affixer and the Stamping Agent would not violate Va. Code § 58.1-1009. However, this conclusion is based on the facts presented and on the assumptions stated, and may change if the assumptions are erroneous or if the stated facts change.

Please also be advised that the Stamping Agent is still responsible for following all statutory requirements imposed on licensed stamping agents. Any stamping agent that fails or refuses to comply with these provisions may have its stamping agent permit revoked and may also be subject to civil and criminal penalties under Chapter 10 of Title 58.1 of the Va. Code .

The Va. Code sections cited are available on-line in the Tax Policy Library section of TAX's web site, located at www.policylibrary.tax.virginia.gov. If you have any questions about this determination, you may contact * in the Office of Tax Policy, Policy Development Division, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

PD/1-2940409419