Rev. Rul. 60-157

Advice is requested whether, for purposes of section 5701(b) of the Internal Revenue Code of 1954, as amended, the tax imposed on cigars by the State of New York, under the provisions of Section 471 of the Consolidated Laws of New York, as amended by Chapter 71, Article 20, of the Laws of New York, 1959, 182nd Session, may be excluded in determining the ordinary retail price of cigars whose principal market is in New York.

Section 471 of the Consolidated Laws of New York, as amended, provides, in part, as follows:

1. There is hereby imposed and shall be paid a tax (a) on all cigarettes possessed in the state by any person for sale on and after April first, nineteen hundred fifty-nine and (b) on all tobacco products possessed in the state by any person for sale on and after July first, nineteen hundred fifty-nine which were imported into the state or manufactured in the state after said date, * * *. Such tax on cigarettes shall be at the rate of two cents for each ten cigarettes or fraction thereof and is intended to be imposed upon only one sale of the same package of cigarettes. Such tax on tobacco products shall be at the rate of fifteen percent of the wholesale price, and is intended to be imposed only once upon any tobacco product.--.

2. It is intended that the ultimate incidence of and liability for the tax shall be upon the consumer, and that any agent, distributor or dealer who shall pay the tax to the tax commission shall collect the tax from the purchaser or consumer. Except as hereinafter provided, the tax shall be advanced and paid by the agent or distributor. The agent shall be liable for the collection and payment of the tax on cigarettes imposed by this article and shall pay the tax to the tax commission--.

Section 5701(b) of the Internal Revenue Code of 1954, as amended, imposes on cigars, manufactured in or imported into the United States, a tax based upon the retail price of the cigars. The retail price, for tax purposes, is the ordinary retail price of a single cigar in its principal market, exclusive of any State or local taxes imposed on the retail sale of cigars. See also Revenue Ruling 55-698, C.B. 1955-2, 474.

Revenue Ruling 60-131, page 85, this Bulletin, holds that the similar New York State cigarette tax is deductible by the consumer for Federal income tax purposes in accordance with section 1.164-1 of the Income Tax Regulations which provides that taxes are deductible only by the person upon whom they are imposed.

Accordingly, it is held that the tax imposed on cigars by the State of New York, under the provisions of Section 471 of the Consolidated Laws of New York, as amended, may be excluded in determining, for Federal cigar tax purposes, the ordinary retail price of cigars whose principal market is in New York, under section 5701(b) of the Internal Revenue Code of 1954, as amended.