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

Comptroller of Public Accounts Capitol Station Re: Basic upon which tax on Austin, Texas cigars levied byArt. 

### 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 wetherefore quote.3.t in full, as follows:

“Request is hereby madefor 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 andtobacco products in this state. “As you know, all excise taxes levied in this state are collected bythe person makingthe 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 onthe 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 andtobaoco 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 bythe person makingthe “first sale”

. In this State. 1

“The language of the foregoing statutes is clear andthere is no difficulty in determining that the taxable event with respect to the cigar andtobacco products tax is the first sale In Texas, andthat the dlstrlbutor is the party obligated to collect sameandpay 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 amountof the first sale -- either by quantity or byprice. In the case of retail sales, the measure Is the price of the sale.

“With respect to the cigar andtobacco products tax the language Is not. clear as to the measure of the tax. In the usual situation, cigars are shipped Into this state bythe manufacturer to a distributor whosells themto a retailer. The words of the statute are as follows:

. . . .

“l(b) Uponcigars 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 ($7.503$8)each, seven dollars.

‘per 

### one thousand (1,000). I”(c) Uponcigars of all descriptions weighing more than three 

### (3) pounds per one thousand .(l,OOO), retailing for over three andthreetenths 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 ~toour present Interpretation, weunderstand 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 maybe. Weare informed by the Industry that as a result of our lnterpretatlon nocigars 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 bythe 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 Thetaxable incident here Is the “first sale” of cigars within the State. “Piret sale” la defined by Art. 8.01(h) as follows:

“(h) Thewords ‘Flrst Sale’ shall meanand 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), andto 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 morethan 3.34 each and those

“retailing” for over 3.34 each. 1 Theterm ~‘retalllng” 1s not defined. Thenormal connotation of theterm “retailing” would Indicate the amountpaid 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 Hecan only guess at whatprice the cigar will ultimately be sold, andpay the tax accordingly. Because the report and remittance of tax must be madesoon after his sale to the retailer, the measuring event (sale at retail) may aotually occur after the tax has .already been remitted. Further, weunderstand that the tax 1stnrmally “passed on”; that Is, that the distributor simply adds the amountof the tax to the price paid himby the retail dealer, Such collection would also of course have to be madeupon aprojected estimate of the price at which the cigars In question will finally be sold. Such a construction might well render the tax statute sovague as to makeIt unconstitutional andvoid. Western UnionTelegraph Co. v. State of Texas, 62 Tex. 639, (1884) However, if weinterpret the term “retailing” to meanthe price at which the cigars are sold to the retail dealer bythe distributor, ‘the uncertainty Is removed. Themeasuring base coincides with the taxable Incident, andthe 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 maybe glvsn apossible, though unusual, meaning. State v. Pioneer Oil &Refining Co., 292 S.W. 869 (Tex.Com.App. 

### im

As further substantiation of this view, wenote; 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 twotax
iThese ari the Only two ClaSSlflCatlOnS of Cigars in which price 1s a factor in determination of the tax due. 2 Asyou 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, 109Tex. 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 comeInto play In classlfi.catlon for tax purposes andhave meaning. SUMMARY Thetax 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 makingthe "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, WILLWILSON Attorney General of Texas

JR1:jp APPROVED: OPINIONCOMMITTEE: W.V. Geppert, Chairman Bill Allen Martha Joe Stroud Joe McMaster REVIEWED

FORTHEATTORNEY

GENERAL By: Leonard Passmore