Effective beginning September 1, 1998 and thereafter, the sales, and the gross proceeds of all sales, subject to the cigarette and tobacco tax shall include those made by wholesalers and dealers to the United States (including any agency or instrumentality therefor that is wholly owned or otherwise so constituted as to be immune from the levy of a tax under chapter 238 and chapter 245, HRS, but not including national banks).
Prior to 1993, section 237-25, HRS, specifically exempted sales of cigarettes and tobacco products to the United States government from both the general excise tax (chapter 237, HRS) and the cigarette and tobacco tax (chapter 245, HRS).
In 1993, pursuant to Act 220, SLH 1993, the exemption from the cigarette and tobacco tax for sales to the United States was repealed from section 237-25, HRS. This was in anticipation of federal legislation that would require military installations to purchase cigarettes from local dealers, much like the state liquor law requires. Upon the enactment of this "buy local" federal legislation, the state would thereafter impose the tax on cigarettes and tobacco products sold to military exchanges. The increased rate of the cigarette tax was similarly contingent upon passage of the federal legislation. However, unlike the repeal of the exemption, the federal legislation as a basis for the cigarette tax increase was codified pursuant to Act 220 in section 245-3, HRS. Nonetheless, because the Department of Taxation (Department) viewed the application of the cigarette and tobacco tax on sales to the military as being contingent upon federal legislation that failed to pass from 1993 through 1997, the Department continued to allow the exemption.
By 1997, it was apparent that the federal legislation was not forthcoming, and pursuant to Act 331, SLH 1997, reference to the federal legislation was repealed from section 245-3, HRS. However, the exemption that had been removed in anticipation of the federal legislation was not reinstated. The Department viewed this as an oversight and, consequently, proposed legislation in 1998 to reinstate the exemption.
The Legislature did not act upon the Department's recommendation to reinstate the exemption, signaling its desire to have the Department enforce the tax on sales of cigarettes and tobacco products to the military.
Pursuant to this legislative directive, the Department will impose the cigarette and tobacco tax on the sale, use, or possession of cigarettes and the sale of tobacco products by wholesalers and dealers to the United States beginning September 1, 1998, and thereafter.
The Department of Taxation will be preparing a revised Form M-19 (Rev. 1998) providing for the new cigarette tax rate and incorporating the imposition of the cigarette and tobacco tax on sales to the United States. The new tax rate is effective for the sale, use, and possession of cigarettes and tobacco products, by wholesalers or dealers beginning July 1, 1998. The tax due for the month of July 1998 must be reported on the revised Form M-19 (Rev. 1998) on or before August 31, 1998. The new tax rate is effective for the sale by wholesalers or dealers to the United States beginning September 1, 1998. The tax due for the month of September 1998 must be reported on the revised Form M-19 (Rev. 1998) on or before October 31, 1998.
Form M-19 (Rev. 1997) must be used only to report sales, use, or possession of cigarettes and tobacco products after August 31, 1997 through June 30, 1998.
To request Form M-19 (Rev. 1998), call the Department of Taxation, Taxpayer
Services Branch, at 808-587-4242.
RAY K. KAMIKAWA
Director of Taxation