Ruling 66-130

Rev. Ruling 66-130

Sale of Tobacco Products to Employees

Advice has been requested whether the sale of cigar and cigarettes an products other than cigars and cigarettes on factory premises by a manufacturer of tobacco products to his employees constitutes an "other business" under the circumstances described below.

A manufacturer of tobacco products set up several small stores on the premises of his factories for the purpose of making available for sale to his employees, for personal consumption only, cigars and cigarettes of his manufacture and products other than cigars and cigarettes of subsidiaries and other divisions of the corporate manufacturer. In addition, cafeterias and vending machines are operated on the factory premises for the convenience of the employees.

26 CFR 270.47 provides that the Director, Alcohol and Tobacco Tax Division, may authorize other businesses within the factory as he finds will not jeopardize the revenue, will not hinder the effective administration of the regulations, and will not be contrary to law.

The sale of cigars and cigarettes by manufacturers of tobacco products on their factory premises is recognized in 26 CFR 270.184 subject, of course, to payment of the tax applicable to such products. These sales, however, need not be confined to the employees of the manufacturer operating the factory. Moreover, under 26 CFR 270.72, a manufacturer of tobacco products may carry on activities in connection with his business, such as may be conducted for the use and convenience of his employees.

Accordingly, it is held that the sale of cigars and cigarettes, subject to tax, by a manufacturer of tobacco products on factory premises to his employees is not considered to be an "other business" within the meaning of 26 CFR 270.47.

Furthermore, the sale of products other than cigars and cigarettes and the operation of cafeterias and vending machines on factory premises, even if operated by entities other than the manufacturer or subsidiaries of divisions thereof, are not considered to be an "other business" within the scope of 26 CFR 270.47, so long as such operations are activities in connection with the cigar and cigarette business of the manufacturer.

Revenue Ruling 64-144, C.B. 1964-1 (Part 1), 584, is hereby superseded.

26 U.S.C. 5712; 27 CFR 270.47