The New York State Department of Taxation and Finance has addressed one of the major issues in tax administration: defining the difference between “big” and “little” cigars. Tax Bulletin TP-530 (August 28, 2014). First, the Department has defined “cigar.” A cigar is any roll of tobacco wrapped in leaf tobacco or in any substance containing tobacco. A “little” cigar is a cigar that has all of the following characteristics: (1) it is a “roll” for smoking made with any amount of tobacco, (2) the cigar wrapper contains some amount or form of tobacco that is not “natural leaf tobacco,” and (3) the product must either weigh four pounds or less per 1,000 cigars or have a filter made of cellulose acetate (i.e., a cigarette-type filter) or any other integrated filter. A “natural leaf tobacco wrapper” that can prevent a cigar from being classified as being “little” is any wrapper made from one or more natural tobacco leaves. An example of a substance commonly used to wrap cigars that contains tobacco but is not “natural leaf tobacco” is “homogenized tobacco leaf,” which is made from “tobacco scraps that are pulverized, mixed with other products and rolled into sheets that can be used to wrap cigars.”
The importance of the ruling is that little cigars are taxed at the same rate as cigarettes, which is lower than the rate on big cigars.
This is probably the most important tax development to come along since the Internal Revenue Service released Revenue Ruling 63-194, 1963-2 C.B. 670, explaining the requirements that a martini would have to meet to be considered a “dry martini” for tax purposes.
The McDermott State and Local Tax Practice Group is well positioned to advise clients on these important issues. Although none of us smoke cigars, our Firm’s real estate and corporate departments are well stocked with cigar smokers so we have access to the necessary expertise to advise our clients.