LINDA LINGLEKURT KAWAFUCHIGOVERNORDIRECTOR OF TAXATIONJAMES R. AIONA, JR.

STANLEY SHIRAKILT. 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

May 26, 2010

DEPARTMENT OF TAXATION ANNOUNCEMENT NO. 2010-03
RE: Increase in the Cigarette Tax on July 1, 2010
Act 59, Session Laws of Hawaii 2010 (Act 59), increases the excise tax per cigarette sold inHawaii.
Section 245-3, Hawaii Revised Statutes, was amended by increasing the excise tax per cigaretteto the following amounts:
15.00 cents per cigarette on and after July 1, 2010;
16.00 cents per cigarette on and after July 1, 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 todistribution. The current cigarette tax stamps are red;1 new yellow tax stamps will be issued toimplement the increase in the tax rate.2 This announcement discusses the procedures for handling theincrease in the price of the tax stamps by either returning unused rolls of stamps for credit or paying thedifference for purposes of the July 1, 2010 tax increase. Subsequent increases will be addressed insubsequent announcements before each increase in tax becomes effective.
I. Impact on Consumers
Consumers will see cigarette packs with red stamps and cigarette packs with yellow stamps. It islegal for retailers to continue to sell cigarette packs with the red stamps on or after July 1, 2010, undercertain circumstances described immediately below.
II. Impact on Retailers
Retailers may continue to sell cigarette packs stamped with the current red tax stamps if: (1) theretailers have the cigarette packs with red stamps affixed in their inventory as of July 1, 2010; or (2) the1

The red stamps (with a denominated value of $2.60) have been sold from June 22, 2009, light brown stamps (witha denominated value of $2.00) have been sold from September 2, 2008, and prior to that violet stamps (with a denominatedvalue of $1.80) were sold, beginning September 4, 2007.
2
The denominated value of the yellow stamp will be $3.00.

Department of Taxation Announcement No. 2010-03
May 26, 2010
Page 2cigarette packs with red stamps affixed were received from licensed wholesalers and dealers on or after
July 1, 2010. 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, 2010, as the tax is imposed on wholesalersand dealers. However, if wholesalers and dealers pass on the additional tax to the retailers, 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 Yellow Stamps
Act 59 requires every wholesaler and dealer to pay a tax of 15 cents per cigarette for eachcigarette sold, used, or possessed on or after July 1, 2010 (and increasing thereafter pursuant to theschedule provided on page 1 of this Announcement).
In order to avoid wholesalers and dealers returning unused red stamps and cigarette packs withred stamps, all wholesalers and dealers must file Form M-107 (Rev. 2010), Cigarette Tax Stamps Floor
Stock return. The purpose of Form M-107 is to collect the difference in price between the new yellow
stamp and current red stamp for every unused or affixed stamp in the wholesaler/dealer's ending
inventory on June 30, 2010 ($3.00 per pack/$0.15 per cigarette versus $2.60 per pack/$0.13 percigarette).
Once the floor stock return Form M-107 has been filed and the difference in the tax has been
paid, the red stamps may be used until depleted, allowing wholesalers and dealers to affix red stamps tocigarette packs on or after July 1, 2010. The stamp fee imposed under section 245-26, HRS,3 and thediscount provided under section 245-22, HRS, 4 will be applicable to the difference in the tax reported on
the floor stock return. Please note that the floor stock returns are subject to audit.
The yellow stamps will be available for purchase from First Hawaiian Bank beginning June 23,
2010. The price of a roll of yellow stamps will be: $45,585.00.
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 that theDepartment 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 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. 2010-03
May 26, 2010
Page 3B. Purchasing Stamps on a Deferred Payment PlanWholesalers and dealers purchasing stamps on a deferred payment plan may increase the amountof their deferred payment purchases by the following:•15.38% (($3.00 - $2.60)/$2.60) if their cigarette tax stamp deferred payment agreement
was approved when the cigarette tax was 13 cents per cigarette.

No increase in bond coverage is necessary for the July 1, 2010 rate increase. However, allrequests by stamp purchasers to increase the amount of deferred payment purchases must be provided inwriting and sent to the following address:
Licensing Section
Taxpayer Services BranchDepartment of Taxation
PO Box 259
Honolulu, Hawaii 96809
The Department is in the process of revising the cigarette and tobacco tax forms to reflect theincrease in the tax rate for sales, use, or possession of cigarettes on or after July 1, 2010.
C. Change in Due Date
Act 22, Session Laws of Hawaii 2010, has changed the due date for the cigarette tax forms, Form
M-19, Cigarette and Tobacco Products Monthly Tax Return, and Form M-110, Cigarette Tax Return,from the last day of the month to the twentieth day of the month beginning July 1, 2010. However, theDepartment will waive penalties and interest on any returns filed between the twentieth day of the monthand the last day of the month for any returns filed for periods up through December 2010. Returns filed
for periods after December 31, 2010 will be assessed penalties and interest. Please see Announcement
2010-02 for more information.
Current forms and other tax information are available at the Department's website at:www.hawaii.gov/tax. Forms and publications may be ordered by calling the Department’s Customer
Call Center at: (808) 587-4242. Persons who are calling from outside of Oahu 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.