The federal cigarette and tobacco tax increases signed into law in early February by President Obama will take effect on April 1, 2009. With the tax increases less than one month away, tobacco retailers should review the list of recommendations below to help prepare for these tax increases:
1. To minimize the floor stocks tax, retailers should put slow moving or non-moving tobacco products on sale now so these products are not on store shelves on April 1.
2. To have funds on hand to pay the floor stocks tax which is due on or before August 1, retailers should set aside in a separate account the higher tax amount collected on tobacco products sold on and after April 1.
3. Retailers are allowed a credit of $500 per company, not per store, against the amount of floor stocks tax payable to the U.S. Government.
4. Retailers will be subject to IRS penalties and fines if the floor stocks tax is not paid or is underpaid.
5. Generally, products shipped from a wholesaler are owned by the purchaser when the shipment leaves the warehouse dock. This means that orders for tobacco products shipped by wholesalers on March 31 and in transit on April 1 are owned by the retailer and need to be included in the retailer’s floor stocks tax calculation.
6. Make regular inventory counts of cigarettes and tobacco products to guard against theft and internal shrinkage.
7. Upgrade security camera and surveillance equipment both inside and outside the store to deter theft and robberies.
8. Install a back up telephone system in the event the main telephone lines are interrupted.
9. Remind employees to set store alarms when closing the store for the day since some insurance companies will not cover losses if the alarm system was not activated when employees closed the store. Or, check with the alarm company about a system that sets the alarm automatically at a preset time each day to ensure that the system is activated.
10. Check the business contents insurance coverage amounts under current insurance policies to ensure that the limits are sufficient to cover the higher tobacco product inventory cost.
11. Retailers should check with their wholesalers regarding current credit arrangements and determine if higher credit limits need to be arranged to purchase tobacco products. Also, retailers should consider having wholesalers deliver smaller orders of tobacco products more frequently to keep less inventory on hand and reduce the possible losses due to theft or burglary.
The federal floor stocks tax will be imposed on all tobacco products (except large cigars which weigh more than 3 pounds per thousand cigars) held in inventory by manufacturers, wholesalers and retailers at 12:01 A.M. on April 1, 2009.
“NATO has been in contact with the U.S. Treasury Department about new forms and instructions for calculating and paying the floor stocks tax,” said Tom Briant, the group’s executive director. “These documents are not ready yet and NATO staff will continue to check with the Treasury Department daily and update NATO members with the documents become available.”