Floor Stocks Tax FAQs
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General Questions | Inventory | Filing Requirements | Controlled Groups | Credits | Miscellaneous
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General
PrintG1: What is a floor stocks tax?
A floor stocks tax is a one-time excise tax placed on a commodity undergoing a tax increase. The amount of the floor stocks tax is equal to the difference between the new tax rate and the immediately prior tax rate.
Last reviewed/updated 06/26/2010
G2: Who is liable for the floor stocks tax?
Any person who holds tobacco products (except large cigars) or cigarette papers or cigarette tubes for sale on April 1, 2009. This includes, for example, wholesale and retail dealers, as well as manufacturers and importers who are holding taxpaid or tax determined products.
Last reviewed/updated 06/26/2010
G3: What products are covered by the floor stocks tax?
Tobacco products subject to this floor stocks tax are cigarettes, small cigars (that is, cigars weighing 3 pounds or less per 1,000), snuff, chewing tobacco, pipe tobacco, and roll-your-own tobacco. In addition, cigarette papers and cigarette tubes are subject to the floor stocks tax. Large cigars are not subject to floor stocks tax.
Tobacco products (except large cigars) and cigarette papers and tubes that are held under TTB bond are not subject to the floor stocks tax. In general, tobacco products (except large cigars) and cigarette papers and tubes are not subject to the floor stocks tax if they have not been released from customs custody because the Federal excise tax has not been paid on them. However, such products are subject to floor stocks tax if the Federal excise has been paid or determined.
Last reviewed/updated 12/13/2010
G4: I received a floor stocks tax return, but I am not engaged in a business involving the sale of tobacco products or cigarette papers or tubes. What should I do?
Do not file a floor stocks tax return.
Last reviewed/updated 02/07/2011
G5: I received a floor stocks tax return, but I only sell large cigars. What should I do?
Do not file a floor stocks tax return.
Last reviewed/updated 04/29/2010
Inventory
I1: Why do I have to take an inventory?
Any person liable for the floor stocks tax must take an inventory to establish the quantity of articles subject to the floor stocks tax.
Last reviewed/updated 06/28/2010
I2: When do I have to take an inventory?
Your inventory must reflect all tobacco products (except large cigars) and cigarette papers and cigarette tubes held for sale on April 1, 2009. You may take your inventory after March 25, 2009, and before April 11, 2009, but if you take inventory any day other than April 1, 2009, the inventory must be reconciled (adjusted) to reflect the actual quantity of products held at the beginning of business on April 1, 2009.
Last reviewed/updated 06/28/2010
I3: As far as my inventory, would it be acceptable if I just figure out how much tax I owe per tobacco product and pay the floor stocks tax by that method?
Detailed guidance on the inventory method is available in the instructions for the floor stocks tax return (TTB P 5000.28T09).
Last reviewed/updated 06/28/2010
I4: Taking an inventory on April 1, 2009, will be very difficult for me. Is there any way to avoid a physical inventory?
The inventory may be a physical inventory or a record (book) inventory supported by the appropriate source records. Only persons with adequate records of receipt and disposition may utilize a record (book) inventory. Information regarding the types of source records that are sufficient to support a record (book) inventory is available in the instructions for the floor stocks tax return (TTB P 5000.28T09).
Last reviewed/updated 06/28/2010
I5: When I perform my inventory on April 1, 2009, how much detail do I have to show in my inventory records – do I have to show by the brand of the product?
If you are performing a physical inventory on April 1, 2009, your record must include the quantity and type of products, recorded in sufficient detail to determine the tax rate. If you are utilizing a record (book) inventory, your records must include the brand name of the products as well as the quantity and type. Detailed guidance regarding what information your inventory records must include is available in the instructions for the floor stocks tax return (TTB P 5000.28T09).
Last reviewed/updated 06/28/2010
I6: Do the products in vending machines have to be included in my inventory?
Yes.
Last reviewed/updated 06/28/2010
I7: How should I handle in-transit merchandise when I do my inventory?
All products subject to floor stocks tax that are in transit must be included in the inventory if you hold title to those products. If you have transferred the title, you must document the title transfer in writing. For example, you may mark the bill of lading with a written statement that indicates the time and place of the title transfer.
Last reviewed/updated 06/28/2010
I8: I have some products on hand that I will be returning to my supplier. Some of it is damaged, and I can’t sell it. Some of it is “O.K.”, but it hasn’t been selling well, and I want to get it off my shelves and send it back. Do I have to count these products in my floor stocks tax inventory?
You are not required to pay floor stocks tax on products that are “unmerchantable”, such as products that you will be returning to the supplier because of some defect or damage. However, you must physically segregate these products and include them in a separate section of your inventory. If, for any reason, the products that were determined to be unmerchantable are not subsequently returned to the supplier or destroyed, you must file an additional floor stocks tax return and pay floor stocks tax on them. Products that you will be returning because of poor sales are not “unmerchantable” and, therefore, you must pay floor stocks tax on these products.
Last reviewed/updated 06/28/2010
I9: Products marked “not for sale” or “complimentary.”
Products marked “not for sale” or “complimentary” that are part of a sale (for example, buy two and get one free) are subject to the floor stocks tax and must be included in your inventory.
Last reviewed/updated 06/28/2010
I10: How long do I have to keep my inventory records?
You must maintain records in support of the floor stocks tax return, including your inventory records, for three years from the date the return was filed, or until July 31, 2012, whichever date is later. TTB may request, in writing, that you retain the records for an additional three years, for a total of six years.
Last reviewed/updated 06/28/2010
I11: Will TTB audit my inventory results?
TTB will be conducting post-inventory examinations of selected taxpayers.
Last reviewed/updated 06/28/2010
Filing Requirements
FR1: Where do I get a return, and what are the rules for filing the return?
Copies of the floor stocks tax return and instructions are available on the TTB website at http://www.ttb.gov/tax_audit/floor-stocks-tax-interim.shtml.
Last reviewed/updated 06/28/2010
FR2: Do I have to file separate returns for all of my locations?
You may file a consolidated return if all locations (including places of business, stores, and warehouses) have the same employer identification number.
Last reviewed/updated 06/28/2010
FR3: When must I file my return?
Your return must be postmarked and the taxes paid no later than July 31, 2009. Public Law 111-3 states that the floor stocks tax shall be paid on or before August 1, 2009, but since August 1, 2009 is a Saturday, the tax and return is due on or before July 31, 2009.
Last reviewed/updated 06/28/2010
Any taxpayer who currently uses electronic funds transfer (EFT) to pay Federal excise tax to TTB must make the floor stocks tax payment by EFT. Other taxpayers have the option of paying by EFT, check, or money order.
Last reviewed/updated 06/28/2010
Controlled Groups
CG1: What types of business structures are considered a controlled group?
All members of a controlled group are considered as a single taxpayer for purposes of the tax credit. A “controlled group” is any group of corporations or non-incorporated businesses that have common ownership interests. Generally, a business is considered to be part of a controlled group if more than 50 percent of the business is either owned by, or in common with, another business. Rules similar to the controlled group rules under 26 U.S.C. § 5061(e)(3) apply.
Last reviewed/updated 06/28/2010
CG2: How do the special provisions concerning the floor stocks tax relate to control groups?
A controlled group is eligible for only one credit for the entire group. The credit may be divided equally among the members of the controlled group or apportioned in any other manner agreeable to the members.
Last reviewed/updated 06/28/2010
CG3: Can the tax owed by all businesses in a control group be paid with one tax return?
Each member of a controlled group that has its own employer identification number must file a separate tax return.
Last reviewed/updated 06/28/2010
Credits
C: What type of credit is available against the floor stocks taxes?
Each person is allowed a credit of up to $500 against the total floor stocks tax liability. If a person has less than $500 in total floor stocks liability, the person is exempt from the floor stocks tax but must still file a return showing a net tax liability of zero. The credit against the floor stocks tax cannot be used as a basis for a claim for refund.
Last reviewed/updated 06/28/2010
Miscellaneous
M1: How can I tell what tax class my products belong to?
You should be able to tell the type of product and the quantity or weight of the product by information on the package. Here are the product definitions and the package information requirements that would apply to products subject to the floor stocks tax. (Large cigars are not subject to floor stocks tax – the definition is included here to illustrate the difference between “large” and “small” cigars.)
Chewing Tobacco (Tax Class C): A package of chewing tobacco is required to be marked with either the words “Chewing Tobacco” or “Tax Class C”. The weight of the product, in pounds and ounces, must appear either on the package or the shipping cases in which the product was removed from the factory.
- Large cigars: A package containing a large cigar or cigars is required to be marked with the word “cigar” and the quantity of cigars in the package. The package is not required to be marked with the word “large”.
- Small Cigars (or Little Cigars): A package containing a small cigar or cigars is required to be marked with the words “small cigar” or “little cigar” and the quantity of small cigars in the package.
- Large Cigarettes (Class B): A package of large cigarettes is required to be marked with the word “cigarettes”, the words “Large” or “Class B”, and the quantity of cigarettes in the package.
- Small Cigarettes (Class A): A package of small cigarettes is required to be marked with the word “cigarettes”, the words “small” or “Class A”, and the quantity of cigarettes in the package.
Pipe Tobacco (Tax Class L): A package of pipe tobacco is required to be marked with the words “pipe tobacco” or “Tax Class L” and the weight, in pounds and ounces, of the product in the package.
Roll-Your-Own Tobacco (or Cigarette Tobacco) (Tax Class J): A package of roll-your-own tobacco is required to be marked with the words “roll-your-own tobacco” or “cigarette tobacco” or “Tax Class J” and the weight, in pounds and ounces, of the product in the package.
Snuff (Tax Class M): A package of snuff is required to be marked with either the words “Snuff” or “Tax Class M”. The weight of the product, in pounds and ounces, must appear either on the package or the shipping cases in which the product was removed from the factory.
Last reviewed/updated 06/28/2010
M2: I have roll-your-own products that contain tobacco and papers within a retail package. Do I have to count the papers for the floor stocks tax and pay the tax on these papers?
Yes, you are responsible for counting all cigarette papers and cigarette tubes.
Last reviewed/updated 06/28/2010
M3: I don’t have the money to pay my entire floor stocks tax liability. What can I do?
File your return and pay as much as you can by the due date, July 31, 2009. Additionally, write a letter to TTB explaining your financial situation and request a payment plan. Attach a copy of the letter to your return, and send the original letter, with a copy of your return, to TTB’s National Revenue Center at 550 Main Street, Cincinnati, OH 45202-5215.
Last reviewed/updated 06/28/2010
M4: Will I owe floor stocks tax on tobacco for use in making cigars or for use as cigar wrappers?
The Act that imposed the floor stocks tax also expanded the definition of roll-your-own tobacco to include tobacco for making cigars or for use as cigar wrappers, effective April 1, 2009. Before that date, the definition of roll-your-own tobacco was “any tobacco which, because of its appearance, type, packaging, or labeling, is suitable for use and likely to be offered to, or purchased by, consumers as tobacco for making cigarettes.” Effective April 1, 2009, the definition of roll-your-own tobacco will be the same as before, but with the words “or cigars, or for use as wrappers thereof” at the end. The floor stocks tax applies to roll-your-own tobacco covered by the old definition and thus does not apply to the products added to that definition.
Last reviewed/updated 06/28/2010
M5: Where can I get more information?
More information is available online at TTB's Floor Stocks Tax home page. You may also contact the TTB National Revenue Center by email at FloorStocksTax@ttb.gov or by telephone at 1-877-882-3277 or 513-684-3334.
Last reviewed/updated 06/28/2010