Did Virginia waive the penalty on 31 unstamped cigarette packs bought from a licensed stamping agent?

Subject

Penalty abated after retailer proved licensed-agent purchase of unstamped cigarettes

Plain-English summary

Virginia abated the penalty on 31 unstamped cigarette packs because the retailer proved they were bought from a licensed Virginia stamping agent. The Department's inspection had produced an assessment for tax, interest, and penalty.

Virginia law prohibited possessing fewer than 3,000 unstamped packs for tax-evasion purposes and authorized a Department penalty of up to $500 for each pack. Tax Bulletin 08-13 allowed a taxpayer to avoid the penalty by proving a lawful purchase from a licensed stamping agent and supplying physical purchase evidence.

The retailer submitted both a signed affidavit from the stamping agent and purchase receipts covering the cigarettes. Virginia found that documentation sufficient and removed the penalty. The remaining tax and interest were not abated.

What this means for you

• Unstamped-cigarette inventory can trigger tax, interest, criminal exposure, and a per-pack administrative penalty under the cited law.
• Retailers should preserve invoices identifying the licensed stamping agent that supplied each purchase.
• An affidavit plus matching receipts was sufficient proof on these facts.
• Penalty relief did not eliminate the underlying tax and interest.

Common questions

How many unstamped packs were found?

Thirty-one.

What proof did the retailer provide?

Purchase receipts and the stamping agent's signed affidavit.

Was the whole assessment erased?

No. Only the penalty was abated; the outstanding balance remained due.

Citations and references

• Va. Code § 58.1-1017(A).
• Virginia Tax Bulletin 08-13.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-86

Original ruling text

June 4, 2010

Re: § 58.1-1821 Application: Virginia Cigarette Tax

Dear *:

This is in response to your letter in which you seek abatement of the penalty included in the cigarette tax assessment issued to * (the "Taxpayer") for the period June 2008. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer operates a gas station and convenience store. As a result of the Department's inspection of the Taxpayer's cigarette inventory, the auditor found the Taxpayer to be in possession of 31 packs of unstamped cigarettes. The Taxpayer was issued an assessment for the tax, interest and penalty on the unstamped cigarettes pursuant to Va. Code § 58.1-1017 and Virginia Tax Bulletin 08-13 (12/11/08).

DETERMINATION

Virginia Code § 58.1-1017 A states:

It shall be unlawful for any person, except as otherwise provided by law, to sell, purchase, transport, receive or possess less than 3,000 packages of cigarettes unless the same have been stamped in the manner required by law, for the purpose of evading the payment of the taxes on such products. Any person violating the provisions of this subsection shall be guilty of a Class 2 misdemeanor. In addition, the Department may impose a penalty, to be assessed and collected by the Department as other taxes are collected, not to exceed $500 per pack on any person for violation of this subsection. Each pack of cigarettes sold, purchased, transported or possessed shall be considered a separate offense.

Virginia Tax Bulletin 08-13 addresses the Department's compliance penalty guidelines and enforcement of the cigarette tax. The tax bulletin sets forth the provisions for the imposition of penalty on unstamped cigarette packs. The tax bulletin further explains that a taxpayer can avoid penalties by proving to the Department that the unstamped cigarettes in its possession were lawfully purchased from a licensed Virginia stamping agent and physical proof that the unstamped cigarettes were purchased from that agent.

In this instance, the Taxpayer provides a signed affidavit from the stamping agent stating the stamping agent sold the unstamped cigarettes in question to the Taxpayer. In addition, the Taxpayer provides purchase receipts showing that the cigarettes in question were purchased from the stamping agent. This documentation is sufficient proof that the Taxpayer purchased the unstamped cigarettes from that licensed stamping agent. Accordingly, the penalty will be abated.

Based on the determination above, the penalty assessed on the packs of unstamped cigarettes will be abated. The outstanding balance of the assessment remains due and payable. An updated bill, with interest accrued to date, will be sent to the Taxpayer. The outstanding balance should be paid within 30 days of the bill date to avoid additional interest charges.

The Code of Virginia section and tax bulletin cited are available on-line at www.tax.virginia.gov in the Department's web site. If you have any questions about this determination, please contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-3468637097.T