Rev. Rul. 54-132

Advice is requested whether the taxes on cigarettes imposed by the Commonwealth of Massachusetts under the provisions of chapter 64C of the General Laws, as amended on and after the effective date of the amendment by the Acts of 1953, chapter 246, section 13, approved April 13, 1953, are deductible for Federal income tax purposes by the consumer.

Section 23(c)(1) of the Internal Revenue Code provides that in computing net income there shall be allowed as deductions taxes paid or accrued within the taxable year, with certain exceptions not here material. Section 39.23(c)-1(a) of Regulations 118 provides that in general taxes are deductible only by the person upon whom they are imposed.

I.T. 3670, C.B. 1944, 114, held that inasmuch as the Massachusetts cigarette tax is imposed by the Commonwealth of Massachusetts on vendors other than retailers (sec. 6, ch. 417, Acts of 1941), such tax is not deductible for Federal income tax purposes by the consumer.

Under chapter 64C of the Massachusetts General Laws prior to its amendment by section 13, chapter 246, Acts of 1953, an excise tax on cigarettes sold is imposed by the Commonwealth of Massachusetts on vendors other than retailers. Cigarettes upon which the excise tax has once been imposed and has not been refunded, if paid, are not subject to other tax upon a subsequent resale.

Section 13, chapter 246, Acts of 1953, which amends chapter 64C of the Massachusetts General Laws, reads as follows:

In addition to the excise tax imposed by chapter sixty-four C of the General Laws, and in addition to the additional excise tax imposed by section nine of chapter seven hundred and thirty-one of the acts of nineteen hundred and forty-five, there is hereby imposed a further additional excise tax of one half mill for each cigarette sold, used, received as gift or gifts, or through exchange or barter in the commonwealth during the tow-year period beginning September first, nineteen hundred and fifty-three, the same to be levied and collected as provided in said chapter sixty-four C, and the provisions of said chapter shall apply to said further additional excise to the same extent as to the normal excise levied thereunder. All the provisions of said chapter sixty-four C relative to the collection, verification and administration of the tax thereunder imposed shall, insofar as pertinent, be applicable to the tax imposed by this act. All cigarette taxes paid in pursuance of this act and other statutes of the general or special laws shall conclusively be presumed to be a direct tax on the retail consumer, pre-collected for the purpose of convenience and facility only.

In view of the above-quoted amendment and apparent intent of the Legislature of the Commonwealth of Massachusetts to impose the cigarette tax upon the consumer, it is held that the cigarette taxes imposed by he Commonwealth of Massachusetts under the provisions of chapter 64C, Massachusetts General Laws, as amended, are deductible on and after the effective date of the amendment by chapter 246, section 13, Acts of 1953, under section 23(c)(1) of the Internal Revenue Code by the consumer, except in the case of an individual who elects to use the optional standard deduction or the short-form 1040, (first sheet of Form 1040), no deduction is allowable unless the cigarette tax is attributable to a trade or business carried on by him. If the tax is attributable to a trade or business carried on by the individual, the amount of the tax is deductible from gross income in computing adjusted gross income. See section 22(n)(1) of the Code.

On and after the effective date of the amendment by section 13, chapter 246, Acts of 1953, no deduction for the cigarette taxes is allowable to the licensees paying the taxes of the Commonwealth of Massachusetts. Accordingly, the portion of the price paid by the consumer to the licensees for cigarettes which represent the Massachusetts cigarette taxes is not includible in the gross income of such licensees.