What South Carolina’s New Cigarette Tax Stamp Law Means for Cigarette Distributors
On March 14, 2016, South Carolina passed Act No.145 (previously known as A145, R149, and H4151), which requires tax stamps be affixed to cigarettes sold in South Carolina. This law officially goes into effect on January 1, 2019, leaving cigarette distributors under a year to get their operations revamped for the stamping and storing process.
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Below, we discuss some of the most important takeaways from the law, and how distributors can begin to prepare their operations if they haven’t already done so.
Key Takeaways of The Law
Who is liable for the new Cigarette Tax?
Any distributor licensed by South Carolina who receives untaxed cigarettes to be sold or distributed in South Carolina must comply with the law and affix a tax stamp to each pack.
In the past, distributors in South Carolina could purchase unstamped cigarettes from other distributors located in the state. This practice is no longer allowed: Starting on January 1, 2019, the distributor receiving the unstamped cigarettes must stamp them prior to distributing to either retailers or other distributors.
There are, though, a number of exemptions to the cigarette tax. Cigarettes to be distributed or sold for the following purposes are exempt from the tax, and must instead be affixed with an “exempt tax stamp”:
- Cigarettes sold to the US Government for Army, Navy, Marine, or Air Force purposes, which have been delivered to a location ceded to the United States
- Cigarettes sold/delivered to a US Navy ship for the purposes of being sold exclusively to members of the military
- Cigarettes sold/delivered to ships engaged in foreign or coastal shipping between South Carolina and a foreign locale
Are credits available for the purchase of new stamping equipment?
Yes, each distributor is allowed a tax credit to purchase a single stamping machine. The exact value of the tax credit is based on the price of the stamping machine and related equipment, to a maximum amount of $175,000. The credit will work as a monthly tax offset (distributors will not receive a reimbursement or refund check).
The exact equipment eligible for tax credit is limited to the stamping machine itself and any equipment that is required to complete the stamping process, which may include (but is not limited to):
- Conveyors or rolling belts needed to feed the machine
- Cutting carton apparatus
- Glue apparatus to re-seal cartons once stamped
- Compressor needed to operate stamping machine
- Automated packing and unpacking equipment
It is important to note that the credit is only available for equipment that is purchased. Leased equipment is not eligible for the credit.
How do I purchase tax stamps for my operation?
Distributors will be able to purchase stamps directly from the state through the Department of Revenue MyDORWAY portal, which will then be shipped directly to the distributor. Stamps may be purchased on 30-day credit terms in lieu of cash at time of purchase.
Stamps must be purchased in rolls of at least 30,000 stamps. Though there is no limit on how many stamps an operation can purchase at one time, it is important to remember that the Excise Tax is due at the time of purchase.
Distributors will receive a discount of 4.25% of the face value of each purchase of cigarette tax stamps effective January 1, 2019 to help offset the costs of affixing and accounting for the tax stamps.
How Can South Carolina Cigarette Distributors Prepare?
It is important that cigarette distributors servicing South Carolina begin preparing for this change as soon as possible to ensure that they do not incur penalties, fines, or suffer from a broken supply chain. This process of course all begins with analyzing your existing workflow, making room for the newly-required stamping equipment, and understanding how product will move through your operation according to this new layout.
Some potential areas that distributors may want to consider optimizing include:
Storage & Transportation
Exact storage requirements will vary based on individual operations.
Pre-stamping operations must by law segregate South-Carolina-stamped cigarettes separately from other inventory. Distributors operating in this manner may require additional storage to accommodate the requirement. Post-stamping operations do not need to store stock separately, but may face other challenges regarding inventory.
Beyond this, distributors need to keep safeguards in place to prevent the co-mingling of cigarettes stamped for various jurisdictions, or else face heavy penalties and fines.
Transportation of product within an operation will likewise vary based on the type and size of the operation.
Every distributor knows that any time you add a step to the supply chain, costs tend to go up, especially when those additional steps lead to an increased demand for labor. Integrating automation technologies throughout the operation in the form of conveyors, sorters, AS/RS, and other technologies can lessen these labor costs while also increasing efficiency, productivity, and, ultimately contribute to a heftier bottom line.
The Bottom Line
Regardless of the type of operation, working with a systems integrator can help South Carolina cigarette distributors prepare their facilities to meet the tax-stamp requirements outlined in the new law.
Conveyco has a long history of successfully implementing systems for cigarette packaging and distribution. Our decades of experience in updating, upgrading, and retrofitting existing distribution lines across multiple industries positions us as an ideal partner to solve the unique distribution challenges of our clients.