The Department of Taxation began initial discussions with stakeholders in late July on potential reforms to the administration of the local cigarette tax, in accordance with an enactment clause included in legislation that passed in 2020 providing additional taxing authority to counties, including the authority to levy a cigarette tax at a rate not to exceed 40 cents per pack, beginning July 1, 2021. The bill language charges the Department with convening this workgroup to make recommendations for modernizing administration of local cigarette tax collection, to include potentially centralizing the stamping process at the state level, where it would be administered by the Department. The current process generally relies on individual stamps for each locality being affixed to cigarette packs by stamping agents (generally wholesalers and distributors) to demonstrate that the local tax has been paid (in addition to the state stamp that documents payment of the state tax). The exception to this process is the regional administration of cigarette taxes in Northern Virginia by the Northern Virginia Cigarette Tax Board (NVCTB); for member jurisdictions, cigarettes are sold with a dual stamp representing the state and local taxes, and the NVCTB collects the local taxes by reviewing documentation provided by wholesalers and distributors as to quantities of cigarettes sold to retailers in each jurisdiction.
The issue of administration of the local cigarette tax was last reviewed by the Department in 2011; among other issues, that workgroup discussed the mechanics of using local tax stamps as a means of documenting payment of local cigarette taxes, and expressed interest in exploring more technologically-advanced stamps that allow tracing to the locality where the cigarette tax is due, which could allow the use of a single stamp to demonstrate payment of both the state and local tax. However, the cost of upgrading the state to this “smart” stamp technology was a stumbling block.
The extension of cigarette taxing authority to counties has renewed interest in the tax collection process. In beginning its work for the current report, the Department held calls with interested parties, including wholesalers and distributors and representatives of local government, during the week of July 27. Local government representatives from areas encompassed by the NVCTB expressed interest in preserving their current arrangements, which they believe work well for industry and localities alike. Representatives from counties that do not yet impose cigarette taxes noted that they are still determining how best to implement the new authority when it takes effect in July 2021. Some jurisdictions have expressed an openness to regional cooperation in implementing the new cigarette tax, and there was also interest in seeking more information on the smart stamp technology. According to notes from the Department, wholesalers and distributors continue to be interested in better stamping technology as well. In addition to transferring enforcement to the Department, proposals offered by the wholesalers and distributors included transferring some administration of the local tax to the Department (processing returns and distributing revenue to localities) while leaving enforcement responsibilities with localities; the establishment of additional regional boards similar to the NVCTB; and transferring stamping responsibilities to retailers.
The Department will be organizing a discussion among the various interested parties in the coming weeks prior to drafting its report, which is due October 31.
VACo Contact: Katie Boyle