LINDA LINGLEKURT KAWAFUCHIGOVERNORDIRECTOR OF TAXATIONJAMES R. AIONA, JR.

SANDRA L. YAHIRO

LT. GOVERNOR

DEPUTY DIRECTOR

STATE OF HAWAII
DEPARTMENT OF TAXATIONP.O. BOX 259
HONOLULU, HAWAII 96809
PHONE NO: (808) 587-1510
FAX NO: (808) 587-1560

June 12, 2009

DEPARTMENT OF TAXATION ANNOUNCEMENT NO. 2009-06
RE: Increase in the Cigarette Tax on July 1, 2009
Act 56, Session Laws of Hawaii 2009 (Act 56), increases the excise tax per cigarette soldin Hawaii.
Section 245-3, Hawaii Revised Statutes, was amended by increasing the excise tax percigarette to the following amounts:
13.00 cents per cigarette on and after July 1, 2009;
14.00 cents per cigarette on and after July 1, 2010;
15.00 cents per cigarette on and after July 1, 2011.
The tax is collected by the Department of Taxation (Department) when cigarette andtobacco wholesalers and dealers purchase cigarette tax stamps, and place the stamps on cigarette
packs prior to distribution. The current cigarette tax stamps are light brown;1 new red tax stamps
will be issued to implement the increase in the tax rate.2 This announcement discusses theprocedures for handling the increase in the price of the tax stamps by either returning unusedrolls of stamps for credit or paying the difference for purposes of the July 1, 2009 tax increase.
Subsequent increases will be addressed in subsequent announcements before each increase intax becomes effective.
I. Impact on Consumers
Consumers will see cigarette packs with light brown stamps and cigarette packs with redstamps. It is legal for retailers to continue to sell cigarette packs with the light brown stamps onor after July 1, 2009, under certain circumstances described immediately below.
II. Impact on Retailers
1

The light brown stamps (with a denominated value of $2.00) have been sold from September 2, 2008, andprior to that violet stamps (with a denominated value of $1.80) were sold, beginning September 4, 2007.
2
The denominated value of the red stamp will be $2.60.

Department of Taxation Announcement No. 2009-06
June 12, 2009
Page 2Retailers may continue to sell cigarette packs stamped with the current light brown taxstamps if: (1) the retailers have the cigarette packs with light brown stamps affixed in theirinventory as of July 1, 2009; or (2) the cigarette packs with light brown stamps affixed werereceived from licensed wholesalers and dealers on or after July 1, 2009. Retailers may have to
explain to consumers the reason for the different colored stamps.
The law does not require retailers, who purchase cigarettes from licensed wholesalers anddealers, to collect the increase in cigarette taxes on July 1, 2009, as the tax is imposed onwholesalers and dealers. However, if wholesalers and dealers pass on the additional tax to theretailers, they may pass on the additional tax to customers.
III. Impact on wholesalers and dealers
A. Filing of a Cigarette Tax Stamps Floor Stock Return; Use of Light Brown Stamps
Act 56 requires every wholesaler and dealer to pay a tax of 13 cents per cigarette for eachcigarette sold, used, or possessed on or after July 1, 2009 (and increasing thereafter pursuant tothe schedule provided on page 1 of this Announcement).
In order to avoid wholesalers and dealers returning unused light brown stamps andcigarette packs with light brown stamps, all wholesalers and dealers must file Form M-107 (Rev.
2009), Cigarette Tax Stamps Floor Stock return. The purpose of Form M-107 is to collect thedifference in price between the new red stamp and current light brown stamp for every unused oraffixed stamp in the wholesaler/dealer's ending inventory on June 30, 2009 ($2.60 perpack/$0.13 per cigarette versus $2.00 per pack/$0.10 per cigarette).
Once the floor stock return Form M-107 has been filed and the difference in the tax has
been paid, the light brown stamps may be used until depleted, allowing wholesalers and dealers
to affix light brown stamps to cigarette packs on or after July 1, 2009. The stamp fee imposed
under section 245-26, HRS,3 and the discount provided under section 245-22, HRS, 4 will be
3Section 245-26(a), HRS, provides: "Stamps shall be sold at their denominated values, plus a stamp fee of
1.7 percent of the denominated value of each stamp sold, composed of the aggregate of:(1) .2 percent of the denominated value of the stamp to pay for the cost to the State of providing thestamps, with such amount to be deposited to the credit of the Department of Taxation's cigarette tax stamp
administrative special fund; and(2) 1.5 percent of the denominated value of the stamp to pay for the cost of enforcing the stamp tax, withsuch amount to be deposited to the credit of the Department of the Attorney General's tobacco enforcement fund;provided that the Department of Taxation by rule may modify the stamp fee to reflect actual costs incurred by theState in providing the stamps."
4Section 245-22(e), HRS, allows stamps to be sold with a 0.4 percent discount to defray the cost ofaffixing the stamps incurred by vendors. The Department may adjust the discount by rule. The discount is effective
beginning September 1, 2001.

Department of Taxation Announcement No. 2009-06
June 12, 2009
Page 3applicable to the difference in the tax reported on the floor stock return. Please note that the floor
stock returns are subject to audit.
The red stamps will be available for purchase from First Hawaiian Bank beginning June22, 2009. The price of a roll of red stamps will be: $39,507.00.
B. Purchasing Stamps on a Deferred Payment Plan
Wholesalers and dealers purchasing stamps on a deferred payment plan may increase theamount of their deferred payment purchases by the following:• 30.0% (($2.60 - $2.00)/$2.00) if their cigarette tax stamp deferred payment agreement
was approved when the cigarette tax was 10 cents per cigarette.
No increase in bond coverage is necessary for the July 1, 2009 rate increase. However,
all requests by stamp purchasers to increase the amount of deferred payment purchases must be
provided in writing and sent to the following address:
Licensing SectionTaxpayer Services Branch
Department of Taxation
PO Box 259
Honolulu, Hawaii 96809
The Department is in the process of revising the cigarette and tobacco tax forms to reflect
the increase in the tax rate for sales, use, or possession of cigarettes on or after July 1, 2009.
Current forms and other tax information are available at the Department's website at:www.hawaii.gov/tax. On Oahu, forms and publications may be ordered by calling theDepartment’s Customer Call Center at: (808) 587-4242. Persons who are calling from outside ofOahu may call: 1-800-222-3229 (toll-free) to receive forms and publications by mail.

KURT KAWAFUCHI
Director of Taxation
HRS Section Explained: HRS Sections 245-3, 245-22, and 245-26.