Mr. Robert S. Calvert Opinion No. W-964 

Comptroller of Public Accounts 

Capitol Station Re: Basic upon which tax on 

Austin, Texas cigars levied by Art. 

8.02(b) and (c). Title 

122A, Taxation-General, 

R.C.S., should be calDear Mr. Calvert: culat.ed. 

Your letter requesting an opinion upon the referenced 

topic sets out pertinent details relating to the question and 

we therefore quote.3.t in full, as follows: 

“Request is hereby made for a formal 

opinion as to the proper interpretation 

of Article 8.01, et seq., TaxationGeneral, V.A.T.S., concerning the 

measure of the tax to be applied to the 

sale of cigars and tobacco products in 

this state. 

“As you know, all excise taxes levied 

in this state are collected by the 

person making the taxable sale. Thus, 

a tax imposed on a retail sale is 

collected by the retailer and a tax 

levied on the first sale Is collected 

by the distributor. 

“The cigar tax is levied on the Pirst 

sale in Texas and is collected by the 

distributor. Thus, Article 8.02, 

TaxatloniGeneral, V.A.T.S., provides In ‘.’ 

part as follows: 

“‘There is hereby levied a tax upon 

the “first sale” of cigars and tobaoco 

products as those terms are defined by 

the following schedule: 

t 

. . . . 

:_i 
: : 

Mr. Robert S. Cal&t, Page 2 (Opinion No. w-964) 

“Article 8.03, Taxation-General, V.A.T.S., 

provides in part as follows: 

“‘The tax levied herein shall be paid 

only once to the Stata Treasur.er by the 

person making the “first sale”. In this State. 1 

“The language of the foregoing statutes is 

clear and there is no difficulty in determining that the taxable event with respect 

to the cigar and tobacco products tax is 

the first sale In Texas, and that the dlstrlbutor is the party obligated to collect 

same and pay it over to the State. 

“The problem arises, however, as to the 

measure of the tax so payable. In all other 

statutes, the tax Is measured by the amount 

of the sale which is considered the taxable 

event. In the case of firstsales, the measure 

is the amount of the first sale -- either by 

quantity or by price. In the case of retail 

sales, the measure Is the price of the sale. 

“With respect to the cigar and tobacco products 

tax the language Is not. clear as to the measure 

of the tax. In the usual situation, cigars 

are shipped Into this state by the manufacturer 

to a distributor who sells them to a retailer. 

The words of the statute are as follows: 

. . . . 

“l(b) Upon cigars of all descriptions weighing 

more than three (3) pounds per one thousand 

(1,000) retailing for not more than three and 

three-tenths cents (3. 

and fifty cents ($7.50 3 

$8) each, seven dollars. 

‘per one thousand (1,000). 

I”(c) Upon cigars of all descriptions weighing 

more than three (3) pounds per one thousand 

.(l,OOO), retailing for over three and threetenths cent8 (3.34) each, fifteen dollars 

($15.00) per one thousand (l,OOO).’ 

“We have .conatrued the Incidence of tax to be 

imposed upon the distributor based upon the 

price at which It is anticipated that the 

retailer will sell the cigars. In other words, 
Mr. Robert S. Calvert, Page 3 (Opinion No. W-964) 

under our present Interpretation of the statute 

the tax Is not paid by the distributor based 

upon the price for which he sells the cigars to 

the retailer, but upon the price at which he 

anticipates that the retailer will sell the 

cigars. 

“With regard ~to our present Interpretation, 

we understand that the distributor or the manufacturer cannot dictate the price at which the 

cigars should be sold at retail because of our 

anti -trust laws. Thus, under our present 

Interpretation, the distributor is required to 

pay the tax only upon an informed guess of what 

the retail price may be. We are informed by 

the Industry that as a result of our lnterpretatlon no cigars fall within the tax prescribed in Article 8.02(b). 

"Your opinion Is therefore respectfully requested as to whether the tax on cigars should 

be based upon the price for which the cigars 

are resold by the distributor to the ‘retailer, 

or whether it should be based upon the anticipated price for which the cigar Is retailed 

by the retailer.” 

It Is our opinion that the tax described should be 

based upon the price for which the distributor sells tve cigars 

to the retailer. ! . t. ,,I 

The taxable incident here Is the “first sale” of 

cigars within the State. “Piret sale” la defined by Art. 

8.01(h) as follows: 

“(h) The words ‘Flrst Sale’ shall mean and 

Include the first sale or distribution of 

cigars or tobacco products In Intrastate 

commerce in the State of Texas or the first 

use or consumption of cigars or tobacco 

products within this State.” 

The distributor making this first sale is required to 

remit the tax due on the transaction (Art. 8.03), and to 

accompany these remittances with reports to your office on or 

before the tenth of each month. (Art. 8.04). 

Art. 8.03(b) and (c), quoted above In your letter, 

sets up.two classifications of cigars weighing more than three 

pounds per 1,000 for the purpose of measuring the tax due: 
Mr. Robert S. Calvert, Page 4 (Opinion No. w-964) 

. 

those “retailing” for not more than 3.34 each and those 

“retailing” for over 3.34 each. 1 The term ~‘retalllng” 1s 

not defined. The normal connotation of theterm “retailing” 

would Indicate the amount paid by the ultimate consumer purchasing these cigars from the retail dealer. However, such 

an Interpretation in this case separates the tax base, or the 

factor upon which the tax Is calculated, from the taxable 

Incident, which 1s the “first sale”. If this Interpretation 

were followed, the distributor would be forced to collect a 

tax measured by the terms of an event which has no occurred; 

that Is, the retail sale to the. ultimate consumer. 8 He can 

only guess at what price the cigar will ultimately be sold, 

and pay the tax accordingly. Because the report and remittance 

of tax must be made soon after his sale to the retailer, the 

measuring event (sale at retail) may aotually occur after the 

tax has .already been remitted. Further, we understand that 

the tax 1s tnrmally “passed on”; that Is, that the distributor 

simply adds the amount of the tax to the price paid him by the 

retail dealer, Such collection would also of course have to 

be made upon a projected estimate of the price at which the 

cigars In question will finally be sold. Such a construction 

might well render the tax statute so vague as to make It unconstitutional and void. Western Union Telegraph Co. v. State 

of Texas, 62 Tex. 639, (1884) However, if we interpret the 

term “retailing” to mean the price at which the cigars are sold 

to the retail dealer by the distributor, ‘the uncertainty Is 

removed. The measuring base coincides with the taxable Incident, 

and the amount of:tax is .fixed as of that time. This Is obvlously the moat reasonable, If not the only praotlcal, lnterpretatlon of the Article. It la settled that, to enable a 

reasonable lnterpretatlon of legislative lntent’,words lna 

statute may be glvsn a possible, though unusual, meaning. State 

v. Pioneer Oil & Refining Co., 292 S.W. 869 (Tex.Com.App. im 

As further substantiation of this view, we note; your 

statement that, under the present interpretation. basing the tax 

.rate on retail Sal98 price, no olgars fall within the tax 

presoribed In Art. 8.02(b); that is, the lower of the two tax 

i These ari the Only two ClaSSlflCatlOnS of Cigars in which price 

1s a factor in determination of the tax due. 

2 As you point out,.the dlstrlbutor or manufacturer may not 

dictate the mandatory retail price of a olgar because of the 

1nhibltlor.k of our anti-trust laws. 
- . 

Mr. Robert S. Calvert, Page 5 (Opinion No. w-964) 

classlflcatlons under consideration. This would constitute Art. 

&02(b) worthless leglslatlon and, as has often been said, the 

Legislature will not be presumed to have done a vain thing. 

Greene v. Roblson, 109 Tex. 367, 210 S.W. 498 (1919). If we 

measure the tax by the price paid upon the first sale, however, 

both provlalons of the Article come Into play In classlfi.catlon 

for tax purposes and have meaning. 

SUMMARY 

The tax on olgare levied by Art. 8.02(b) 

and (c), Title 122A, Taxation-General, R.C.S., 

should be calculated upon the price received 

by the distributor or person making the "first 

sale" of the cigars in Intrastate commerce and 

not upon the price at which such cigars are 

ultimately sold at retail. 

Yours very truly, 

WILL WILSON 

Attorney General of Texas 

JR1:jp 

APPROVED: 

OPINION COMMITTEE: 

W. V. Geppert, Chairman 

Bill Allen 

Martha Joe Stroud 

Joe McMaster 

REVIEWED FOR THE ATTORNEY GENERAL 

By: Leonard Passmore