KURT KAWAFUCHILINDA LINGLEGOVERNORDIRECTOR OF TAXATIONJAMES R. AIONA, JR.

SANDRA YAHIRODEPUTY DIRECTOR

LT. GOVERNORSTATE OF HAWAII

DEPARTMENT OF TAXATIONP.O. BOX 259
HONOLULU, HAWAII 96809

PHONE NO: (808) 587-1510
FAX NO: (808) 587-1560

August 26, 2008

DEPARTMENT OF TAXATION ANNOUNCEMENT NO. 2008-04
RE: Increase in the Cigarette Tax on September 30, 2008
Act 316, Session Laws of Hawaii 2006 (Act 316), increased the excise tax per cigarettesold in Hawaii. For more information, see Department of Taxation Announcement No. 2006-13.
Section 245-3, Hawaii Revised Statutes, was amended by increasing the excise tax percigarette by one cent per year to the following amounts:
10.00 cents per cigarette on and after September 30, 2008;
11.00 cents per cigarette on and after September 30, 2009;
12.00 cents per cigarette on and after September 30, 2010;
13.00 cents per cigarette on and after September 30, 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 violet;1 new light brown 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 September 30, 2008 tax
increase. Subsequent increases will be addressed in subsequent announcements before eachincrease in tax becomes effective.
I. Impact on Consumers
Consumers will see cigarette packs with violet stamps and cigarette packs with lightbrown stamps. It is legal for retailers to continue to sell cigarette packs with the violet stamps onor after September 30, 2008, under certain circumstances described immediately below.

1

The violet stamps (with a denominated value of $1.80) have been sold from September 4, 2007, and prior
to that orange stamps (with a denominated value of $1.60) were sold, beginning September 1, 2006.
2
The denominated value of the light brown stamp will be $2.00.

Department of Taxation Announcement No. 2008-04
August 26, 2008
Page 2II. Impact on Retailers
Retailers may continue to sell cigarette packs stamped with the current violet tax stamps
if: (1) the retailers have the cigarette packs with violet stamps affixed in their inventory as ofSeptember 30, 2008; or (2) the cigarette packs with violet stamps affixed were received fromlicensed wholesalers and dealers on or after September 30, 2008. Retailers may have to explain
to consumers the reason for the different colored stamps.
Act 316 does not require retailers, who purchase cigarettes from licensed wholesalers anddealers, to collect the increase in cigarette taxes on September 30, 2008, 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 Violet Stamps
Act 316 requires every wholesaler and dealer to pay a tax of 10 cents per cigarette foreach cigarette sold, used, or possessed on or after September 30, 2008 (and increasing thereafter
pursuant to the schedule provided on page 1 of this Announcement).
In order to avoid wholesalers and dealers returning unused violet stamps and cigarette
packs with violet stamps, all wholesalers and dealers must file Form M-107 (Rev. 2008),
Cigarette Tax Stamps Floor Stock return. The purpose of Form M-107 is to collect the differencein price between the new light brown stamp and current violet stamp for every unused or affixedstamp in the wholesaler/dealer's ending inventory on September 29, 2008 ($2.00 per pack/$0.10
per cigarette versus $1.80 per pack/$0.09 per cigarette).
Once the floor stock return Form M-107 has been filed and the difference in the tax has
been paid, the violet stamps may be used until depleted, allowing wholesalers and dealers to
affix violet stamps to cigarette packs on or after September 30, 2008. 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."Department of Taxation Announcement No. 2008-04
August 26, 2008
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 light brown stamps will be available for purchase from First Hawaiian Bank
beginning September 2, 2008. The price of a roll of violet stamps will be: $30,390.00.
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:• 11.1% (($2.00 - $1.80)/$1.80) if their cigarette tax stamp deferred payment agreement
was approved when the cigarette tax was 9 cents per cigarette.
No increase in bond coverage is necessary for the September 30, 2008 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 Section
Taxpayer Services Branch
Department of Taxation
PO Box 259
Honolulu, Hawaii 96809
The Department has revised the cigarette and tobacco tax forms to reflect the increase in
the tax rate for sales, use, or possession of cigarettes on or after September 30, 2008.
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 Forms and Publications Request Line at: (808) 587-7572. Persons who are callingfrom outside of Oahu may call: 1-800-222-7572 (toll-free) to receive forms and publications bymail.

KURT KAWAFUCHI
Director of Taxation
HRS Section Explained: HRS Sections 245-3, 245-22, and 245-26.
4

Section 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.