DESCRIPTION OF TITLE X OF H.R. 3162, THE 

“CHILDREN’S HEALTH AND MEDICARE PROTECTION ACT OF 2007” 

Scheduled for Markup 

before the 

HOUSE COMMITTEE ON WAYS AND MEANS 

on July 26, 2007 

Prepared by the Staff 

of the 

JOINT COMMITTEE ON TAXATION 

 

July 25, 2007 

JCX-54-07
i 

CONTENTS 

Page

INTRODUCTION .......................................................................................................................... 1 

I. INCREASE TOBACCO TAX RATES AND MODIFY CERTAIN DEFINITIONS ....... 2 

A. Increase Excise Tax Rates on Tobacco Products and Cigarette Papers and Tubes...... 2 

B. Modify Definition of Roll-Your-Own Tobacco ........................................................... 6 

II. OTHER PROPOSALS........................................................................................................ 7 

A. Exemption from Fuel Excise Tax for Use in Ambulances ........................................... 7 
1

INTRODUCTION 

The House Committee on Ways and Means has scheduled a markup on July 26, 2007. 

This document,1 prepared by the staff of the Joint Committee on Taxation, provides a description 

of Title X of H.R. 3162, the Children’s Health and Medicare Protection Act of 2007. 

 1

 This document may be cited as follows: Joint Committee on Taxation, Description of Title X of 

H.R. 3162, the “Children’s Health and Medicare Protection Act of 2007” (JCX-54-07), July 25, 2007. 

This document can also be found on the web at www.house.gov/jct. 
2 

I. INCREASE TOBACCO TAX RATES AND MODIFY CERTAIN DEFINITIONS 

A. Increase Excise Tax Rates on Tobacco Products 

and Cigarette Papers and Tubes 

Present Law

Rates of excise tax on tobacco products and cigarette papers and tubes

Tobacco products and cigarette papers and tubes manufactured in the United States or 

imported into the United States are subject to Federal excise tax at the following rates:2 

• Cigarettes weighing not more than three pounds per thousand (“small cigarettes”) are 

taxed at the rate of $19.50 per thousand ($0.39 per pack); 

• Cigarettes weighing more than three pounds per thousand (“large cigarettes”) are 

taxed at the rate of $40.95 per thousand, except that, if they measure more than six 

and one-half inches in length, they are taxed at the rate applicable to small cigarettes, 

counting each two and three-quarter inches (or fraction thereof) of the length of each 

as one cigarette; 

• Cigars weighing not more than three pounds per thousand (“small cigars”) are taxed 

at the rate of $1.828 per thousand; 

• Cigars weighing more than three pounds per thousand (“large cigars”) are taxed at the 

rate equal to 20.719 percent of the manufacturer’s or importer’s sales price but not 

more than $48.75 per thousand; 

• Cigarette papers are taxed at the rate of $0.0122 for each 50 papers or fractional part 

thereof, except that, if they measure more than six and one-half inches in length, they 

are taxable by counting each two and three-quarter inches (or fraction thereof) of the 

length of each as one cigarette paper; 

• Cigarette tubes are taxed at the rate of $0.0244 for each 50 tubes or fractional part 

thereof, except that, if they measure more than six and one-half inches in length, they 

are taxable by counting each two and three-quarter inches (or fraction thereof) of the 

length of each as one cigarette tube; 

• Snuff is taxed at the rate of $0.585 per pound, and proportionately at that rate on all 

fractional parts of a pound; 

• Chewing tobacco is taxed at the rate of $0.195 per pound, and proportionately at that 

rate on all fractional parts of a pound; 

 2

 Sec. 5701. Except where otherwise stated, all section references are to the Internal Revenue 

Code of 1986, as amended (the “Code”). 
3 

• Pipe tobacco is taxed at the rate of $1.0969 per pound, and proportionately at that rate 

on all fractional parts of a pound; and 

• Roll-your-own tobacco is taxed at the rate of $1.0969 per pound, and proportionately 

at that rate on all fractional parts of a pound. 

Floor stocks tax and foreign trade zones

The Balanced Budget Act of 1997 increased excise taxes on tobacco products and 

cigarette papers and tubes.3 That provision also imposed a tax (“floor stocks tax”) on any such 

items removed before the effective date of the tax increase and held on that date for sale by any 

person. The amount of the floor stocks tax was the excess of the amount of tax on such items at 

the increased rate over the amount of tax at the old rate. Each person was allowed a $500 credit 

against the floor stocks tax. 

Special tax and duty rules apply with respect to foreign trade zones. In general, 

merchandise may be brought into a foreign trade zone without being subject to the general 

customs laws of the United States. Such merchandise may be stored in a foreign trade zone or 

may be subjected to manufacturing or other processes there. The United States Customs and 

Border Protection agency of the Department of Homeland Security (“Customs”) may determine 

internal revenue taxes and liquidate duties imposed on foreign merchandise in such foreign trade 

zones. Articles on which such taxes and applicable duties have already been paid, or which have 

been admitted into the United States free of tax, that have been taken into a foreign trade zone 

from inside the United States, may be held under the supervision of a customs officer. Such 

articles may later be released back into the United States free of further taxes and duties.4

Description of Proposal

Rate increases

Under the proposal, the rates of excise tax on tobacco products and cigarette papers and 

tubes are increased, generally in a proportionate manner. The special rules under present law 

relating to large cigarettes and cigarette papers and tubes longer than six and one-half inches 

remain the same. The rates under the proposal are as follows: 

• Small cigarettes are taxed at the rate of $42.00 per thousand ($0.84 per pack); 

• Large cigarettes are taxed at the rate of $88.20 per thousand; 

• Small cigars are taxed at the rate of $42.00 per thousand (the same rate applied to 

small cigarettes); 

 3

 Pub. L. No. 105-33, sec. 9302 (1997). 

4

 19 U.S.C. sec. 81c(a). 
4 

• Large cigars are taxed at the rate equal to 44.63 percent of the manufacturer’s or 

importer’s sales price but not more than $1.00 per cigar; 

• Cigarette papers are taxed at the rate of $0.0263 for each 50 papers or fractional part 

thereof; 

• Cigarette tubes are taxed at the rate of $0.0526 for each 50 tubes or fractional part 

thereof; 

• Snuff is taxed at the rate of $1.26 per pound, and proportionately at that rate on all 

fractional parts of a pound; 

• Chewing tobacco is taxed at the rate of $0.42 per pound, and proportionately at that 

rate on all fractional parts of a pound; 

• Pipe tobacco is taxed at the rate of $2.36 per pound, and proportionately at that rate 

on all fractional parts of a pound; and 

• Roll-your-own tobacco is taxed at the rate of $7.4667 per pound, and proportionately 

at that rate on all fractional parts of a pound. The rate for roll-your-own tobacco is 

intended to approximate the rate for small cigarettes. 

Floor stocks tax and foreign trade zone treatment

The proposal also imposes a tax on floor stocks. Taxable articles (i.e., those articles 

listed above) manufactured in the United States or imported into the United States which are 

removed before January 1, 2008 and held on that date for sale by any person are subject to a 

floor stocks tax. The floor stocks tax is equal to the excess of the applicable tax under the new 

rates over the applicable tax at the present-law rates. The person holding the article on January 

1, 2008 to which the floor stocks tax applies is liable for the tax. Such person is allowed a $500 

credit against the floor stocks tax. In addition, to the extent provided in regulations, no floor 

stocks tax is to be imposed on cigarettes held for retail sale on January 1, 2008 in a vending 

machine by any person. The Secretary may reduce a person’s general $500 credit by the amount 

of vending machine cigarette taxes exempted for that person. 

Notwithstanding any other provision of law, the floor stocks tax applies to an article 

located in a foreign trade zone on January 1, 2008, provided that internal revenue taxes have 

been determined, or customs duties have been liquidated, with respect to such article before such 

date, or such article is held on a tax-and-duty-paid basis on such date under the supervision of a 

customs officer. 

For purposes of determining the floor stocks tax, component members of a “controlled 

group” (as modified) are treated as one taxpayer.5

 “Controlled group” for these purposes means 

a parent-subsidiary, brother-sister, or combined corporate group with more than 50-percent 

 5

 Controlled group is defined in section 1563. 
5 

ownership with respect to either combined voting power or total value. Under regulations, 

similar principles may apply to a group of persons under common control where one or more 

persons are not a corporation. 

The proposal provides that the floor stocks tax shall be paid on or before April 14, 2008, 

in the manner prescribed by Treasury regulations. In general, all of the rules, including 

penalties, applicable with respect to taxes on tobacco products and cigarette papers and tubes 

apply to the floor stocks tax. The person who bore the ultimate burden of the floor stocks tax 

may be treated as the person entitled to a credit of refund of such tax. 

Effective Date

The proposal applies to articles removed after December 31, 2007. 
6 

B. Modify Definition of Roll-Your-Own Tobacco 

Present Law

Federal excise taxes are imposed upon tobacco products and cigarette papers and tubes.6 

Tobacco products are cigars, cigarettes, snuff, chewing tobacco, pipe tobacco, and roll-your-own 

tobacco. A “cigar” is any roll of tobacco wrapped in leaf tobacco or in any substance containing 

tobacco, other than any roll of tobacco which is a cigarette. A “cigarette” is (i) any roll of 

tobacco wrapped in paper or in any substance not containing tobacco; and (ii) any roll of tobacco 

wrapped in any substance containing tobacco which, because of its appearance, the type of 

tobacco used in the filler, or its packaging and labeling, is likely to be offered to, or purchased 

by, consumers as a cigarette. “Roll-your-own tobacco” is any tobacco, which because of its 

appearance, type, packaging, or labeling, is suitable for use and likely to be offered to, or 

purchased by, consumers as tobacco for making cigarettes. “Cigarette paper” is paper, or any 

other material except tobacco, prepared for use as a cigarette wrapper. A “cigarette tube” is 

cigarette paper made into a hollow cylinder for use in making cigarettes.7

Wrappers containing tobacco are not within the definition of cigarette papers or tubes 

because they contain tobacco. They are also not generally within the definition of roll-your-own 

tobacco because they are usually used to make cigars, not cigarettes. For the same reason, loose 

tobacco suitable for making roll-your-own cigars is not considered to be roll-your-own tobacco. 

Description of Proposal

Under the proposal, roll-your-own tobacco also includes any tobacco, which because of 

its appearance, type, packaging, or labeling, is suitable for use and likely to be offered to, or 

purchased by, consumers as tobacco for making cigars, or for use as wrappers for making cigars. 

Effective Date

The proposal applies to articles removed after December 31, 2007. 

 

 6

 Sec. 5701. 

7

 Sec. 5702. 
7 

II. OTHER PROPOSALS 

A. Exemption from Fuel Excise Tax for Use in Ambulances 

Present Law

In general, Federal excise tax is imposed upon the removal of taxable fuel from a 

terminal or refinery, the entry of taxable fuel into the United States, and the sale of taxable fuel 

to, or use of taxable fuel by, any person unless tax was previously imposed.8

 Certain uses of fuel 

are exempt from tax. For example, fuel sold to a State or local government for the exclusive use 

of a State or local government is exempt. For another example, liquids sold for use in, or used 

in, helicopters or fixed wing aircraft for the purpose of providing emergency medical services are 

exempt.9 The ultimate purchaser of fuel used for such exempt purposes is entitled to a payment 

without interest from the Secretary equal to the aggregate amount of the tax imposed on such 

fuel.10 A claim for such payment must ordinarily be filed on an annual basis; however, a claim 

may be filed as often as quarterly if at the close of any quarter of the taxable year of a claimant, 

the aggregate amount of tax owing to the claimant with respect to fuel is at least $750.11

Description of Proposal

Under the proposal, any liquid sold for use in, or used in, any ambulance for purposes of 

providing transportation for emergency medical services is exempt from Federal excise tax. The 

ultimate purchaser of fuel used for such exempt purpose is entitled to a payment without interest 

from the Secretary equal to the aggregate amount of the tax imposed on such fuel. A claim for 

such payment must ordinarily be filed on an annual basis; however, a claim may be filed as often 

as quarterly if at the close of any quarter of the taxable year of a claimant, the aggregate amount 

of tax owing to the claimant with respect to fuel is at least $750. 

The proposal does not apply to any liquid used after December 31, 2009. 

Effective Date

The proposal applies to fuel used in transportation provided in calendar quarters 

beginning after the date of enactment. 

 8

 Secs. 4041(a)(1) and 4081(a)(1). 

9

 Secs. 4041(l) and 4261(g). Fixed-wing aircraft must be equipped for and fully dedicated on 

that flight to acute care emergency medical services. 

10 Sec. 6427(d). 

11 Sec. 6427(i).