A recent New Jersey Tax Court decision sheds light on an important issue for retailers of premium tobacco products: how to properly calculate the state’s tobacco products tax.
In Barrister Cigars LLC v. Director, Division of Taxation (Dkt. No. 009089-2022, April 1, 2025), the court ruled that a premium cigar retailer must base its 30% tobacco products tax on the actual price wholesalers paid to manufacturers—not on the retailer’s purchase price from wholesalers or on any estimated discounts. Martin D. Hauptman, Partner in our Tax, Trusts, and Estates practice groups, breaks down what this means for tobacco retailers and distributors.
Overview of the Dispute
The retailer purchased cigars from out-of-state wholesalers, who in turn purchased directly from the manufacturers. The retailer sought to use a discounted figure—an estimated 40% reduction from the wholesale price—to calculate the tax base, arguing this better reflected the “true” price paid to manufacturers.
Additionally, the retailer requested access to the Division of Taxation’s records to help determine the manufacturer price. The court denied this request but granted the retailer extra time to obtain the necessary records from other sources.
Key Takeaways for Retailers
This ruling highlights several important points for premium tobacco retailers in New Jersey. First, the tax base for the tobacco products tax must be calculated using the actual price wholesalers pay to manufacturers—not the retail price or the price retailers pay to wholesalers. Second, estimated discounts or assumptions about the manufacturer price are not acceptable for determining the tax base. Third, while retailers cannot compel the Division of Taxation to disclose pricing records, they may seek those records through other channels. Furthermore, although the court may grant additional time to gather supporting documentation, maintaining accurate and complete records is essential for compliance.
Why This Matters
Understanding how to correctly calculate the tobacco products tax is critical for compliance and avoiding unexpected liabilities; retailers who miscalculate the tax base risk penalties and interest on underpayments. For premium cigar retailers and others navigating New Jersey’s tobacco tax laws, careful documentation of pricing at every level of the supply chain is essential.
If you are a tobacco product retailer or distributor looking for guidance on tax compliance or documentation, contact Martin D. Hauptman at mhauptman@mblawfirm.com or 973-243-7912.