Rev. Ruling 64-12

Tax Rate of Cigars Removed for Use as Free Samples

Advice has been requested as to the tax rate applicable to cigars removed by a manufacturer for distribution to his salesman for use as free samples to prospective purchasers.

In the instant case, the cigars removed as samples are identical to cigars which the manufacturer regularly taxpays at the Class C rate. The question here involved is whether the samples cigars should be taxpaid at the same rate as identical cigars removed for commercial sales and consumption or whether they may be removed and taxpaid at Class A rate.

Section 5701(b) of he Internal Revenue Code of 1954 provides seven taxable classes for large cigars (cigars weighing more than three pounds per thousands) and requires that cigars removed but not intended for sale shall be taxed at the same rate as cigars removed for sale.

Under the provisions of section 5701(b) of the Code, section 270.21 of the Manufacture of Tobacco Products Regulations, and section 275.31 of the Regulations relating to the Importation of Tobacco Materials, Tobacco Products and Cigarette Papers and Tubes, a manufacturer or importer must taxpay all cigars of the same brand, shape, and size at all the same rate upon removal for taxable purposes. No exception is made for cigars removed as samples. Accordingly, cigars delivered by a manufacturer or importer to his salesmen for free distribution as samples to prospective purchasers must be taxpaid at the same tax rate as identical cigars when removed for sale.

Revenue Ruling 55-662, C.B. 1955-2,473, is hereby superseded.