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

August 24, 2006

DEPARTMENT OF TAXATION ANNOUNCEMENT NO. 2006-14
RE: Increase in the Cigarette Tax on September 30, 2006
Act 316, Session Laws of Hawaii 2006 (Act 31), increases the excise tax per cigarette sold inHawaii. For more information, see Department of Taxation Announcement No. 2006-13.
Section 245-3, Hawaii Revised Statutes, is amended by increasing the excise tax per cigaretteby one cent per year over a six-year span, to the following amounts:
8.00 cents per cigarette on and after September 30, 2006;
9.00 cents per cigarette on and after September 30, 2007;
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 and tobaccowholesalers and dealers purchase cigarette tax stamps, and place the stamps on cigarette packs prior
to distribution. The current cigarette tax stamps are blue;1 new orange tax stamps will be issued toimplement the increase in the tax rate.2 This announcement discusses the procedures for handlingthe increase in the price of the tax stamps by either returning unused rolls of stamps for credit or
paying the difference for purposes of the September 30, 2006 tax increase. Subsequent increases
will be addressed in subsequent announcements before each increase in tax becomes effective.
I. Impact on Consumers
Consumers will see cigarette packs with blue stamps and cigarette packs with orange stamps.
It is legal for retailers to continue to sell cigarette packs with the blue stamps on or after September
30, 2006, under certain circumstances described immediately below.
1

The blue stamps (with a denominated value of $1.40) have been sold from July 1, 2004, and prior to thatpink stamps (with a denominated value of $1.30) were sold, beginning June 2, 2003.
2The denominated value of the orange stamp will be $1.60.

Department of Taxation Announcement No. 2006-14
August 24, 2006
Page 2 of 3

II. Impact on Retailers
Retailers may continue to sell cigarette packs stamped with the current blue tax stamps if
they have cigarette packs with blue stamps in their inventory as of September 30, 2006. Cigarette
packs with blue stamps received from licensed wholesalers and dealers on or after September 30,
2006 may likewise be sold. 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, 2006, 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 Orange Stamps
Act 316 requires every wholesaler and dealer to pay a tax of 8 cents per cigarette for eachcigarette sold, used, or possessed on or after September 30, 2006 (and increasing thereafter pursuant
to the schedule provided on page 1 of this Announcement).
In order to avoid wholesalers and dealers returning unused blue stamps and cigarette packs
with blue stamps, all wholesalers and dealers must file Form M-107 (Rev. 2006), Cigarette Tax
Stamps Floor Stock Return. The purpose of Form M-107 is to collect the difference in pricebetween the new orange stamp and current blue stamp for every unused or affixed stamp in thewholesaler/dealer's ending inventory on September 29, 2006 ($1.60 per pack/$0.08 per cigaretteversus $1.40 per pack/$0.07 per cigarette).
Once the floor stock return Form M-107 has been filed and the difference in the tax has been
paid, the blue stamps may be used until depleted, allowing wholesalers and dealers to affix blue
stamps to cigarette packs on or after September 30, 2006. The stamp fee imposed under section 24526, HRS,3 and the discount provided under section 245-22, HRS,4 will be applicable to the difference

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 the stamps, withsuch 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, with suchamount to be deposited to the credit of the Department of the Attorney General's tobacco enforcement fund; provided thatthe Department of Taxation by rule may modify the stamp fee to reflect actual costs incurred by the State in providing thestamps."
4Section 245-22(e), HRS, allows stamps to be sold with a 0.4 percent discount to defray the cost of affixing thestamps incurred by vendors. The Department may adjust the discount by rule. The discount is effective beginning
September 1, 2001.

Department of Taxation Announcement No. 2006-14
August 24, 2006
Page 3 of 3
in the tax reported on the floor stock return. Please note that the floor stock returns are subject toaudit.
The orange stamps will be available for purchase from First Hawaiian Bank beginning
September 29, 2006. The price of a roll of orange stamps will be: $24,312.00.
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:•14.3% (($1.60 - $1.40)/$1.40) if their cigarette tax stamp deferred payment agreement wasapproved when the cigarette tax was 7 cents per cigarette.

No increase in bond coverage is necessary for the September 30, 2006 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 thetax rate for sales, use, or possession of cigarettes on or after September 30, 2006.
Current forms and other tax information are available at the Department's website at:www.hawaii.gov/tax. On Oahu, forms may be ordered by calling the Department's Forms Request
Line at: (808) 587-7572. Persons who are calling from outside of Oahu may call: 1-800-222-7572(toll-free) to receive forms by mail or by fax.

KURT KAWAFUCHI
Director of Taxation

HRS Section Explained: HRS Sections 245-3, 245-22, and 245-26.