Mr. Robert S. Calvert                   Opinion No. W-964
Comptroller of Public        Accounts
Capitol Station                         Re:   Basic upon which tax on
Austin, Texas                                 cigars    levied by Art.
                                              8.02(b) and (c).    Title
                                              122A, Taxation-General,
                                              R.C.S.,   should be cal-
Dear Mr. Calvert:                             culat.ed.
          Your letter   requesting an opinion upon the referenced
topic sets out pertinent    details   relating  to the question and
we therefore  quote.3.t in full,    as follows:
         “Request is hereby made for a formal
         opinion as to the proper interpretation
         of Article  8.01, et seq.,  Taxation-
         General, V.A.T.S.,  concerning the
         measure of the tax to be applied to the
         sale of cigars and tobacco products in
         this state.
         “As you know, all   excise taxes levied
         in this state are collected    by the
         person making the taxable sale.      Thus,
         a tax imposed on a retail    sale is
         collected  by the retailer  and a tax
         levied on the first   sale Is collected
         by the distributor.
         “The cigar tax is levied on the Pirst
         sale in Texas and is collected     by the
         distributor.    Thus, Article  8.02,
         TaxatloniGeneral,   V.A.T.S.,  provides In         ‘.’
         part as follows:
              “‘There is hereby levied a tax upon
         the “first   sale” of cigars and tobaoco
         products as those terms are defined by
         the following    schedule:
                  . . . .t
            :_i
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Mr. Robert   S. Cal&t,         Page 2   (Opinion   No. w-964)


         “Article      8.03, Taxation-General,     V.A.T.S.,
         provides      in part as follows:
              “‘The tax levied herein shall be paid
         only once to the Stata Treasur.er by the
         person making the “first   sale”. In this State. 1
         “The language of the foregoing   statutes is
         clear and there is no difficulty   in deter-
         mining that the taxable event with respect
         to the cigar and tobacco products tax is
         the first   sale In Texas, and that the dls-
         trlbutor  is the party obligated  to collect
         same and pay it over to the State.
         “The problem arises,   however, as to the
         measure of the tax so payable.       In all other
         statutes,   the tax Is measured by the amount
         of the sale which is considered the taxable
         event.    In the case of firstsales,     the measure
         is the amount of the first     sale -- either by
         quantity or by price.    In the case of retail
         sales, the measure Is the price of the sale.
         “With respect to the cigar and tobacco products
         tax the language Is not. clear as to the measure
         of the tax.    In the usual situation, cigars
         are shipped Into this state by the manufacturer
         to a distributor   who sells them to a retailer.
         The words of the statute are as follows:
             . . . .
         “l(b)   Upon cigars of all descriptions     weighing
         more than three (3) pounds per one thousand
         (1,000) retailing    for not more than three and
         three-tenths    cents (3. $8) each, seven dollars.
         and fifty    cents ($7.50 3 ‘per one thousand (1,000).
         I”(c)  Upon cigars of all descriptions    weighing
         more than three (3) pounds per one thousand
         .(l,OOO), retailing for over three and three-
         tenths cent8 (3.34) each, fifteen    dollars
         ($15.00) per one thousand (l,OOO).’
         “We have .conatrued the Incidence of tax to be
         imposed upon the distributor   based upon the
         price at which It is anticipated   that the
         retailer will sell the cigars.    In other words,
Mr. Robert S. Calvert,   Page 3       (Opinion   No. W-964)


         under our present Interpretation     of the statute
         the tax Is not paid by the distributor     based
         upon the price for which he sells the cigars to
         the retailer,   but upon the price at which he
         anticipates   that the retailer  will sell the
         cigars.
         “With regard ~to our present Interpretation,
         we understand that the distributor         or the manu-
         facturer   cannot dictate      the price at which the
         cigars should be sold at retail         because of our
         anti -trust laws.     Thus, under our present
         Interpretation,     the distributor     is required to
         pay the tax only upon an informed guess of what
         the retail    price may be.      We are informed by
         the Industry that as a result of our lnter-
         pretatlon    no cigars fall within the tax pres-
         cribed in Article     8.02(b).
         "Your opinion Is therefore    respectfully    re-
         quested as to whether the tax on cigars should
         be based upon the price for which the cigars
         are resold by the distributor     to the ‘retailer,
         or whether it should be based upon the anti-
         cipated price for which the cigar Is retailed
         by the retailer.”
          It Is our opinion that the tax described    should be
based upon the price for which the distributor    sells tve cigars
to the retailer.                                         ! .,,I
                                                             t.

         The taxable incident here Is the “first   sale” of
cigars within the State.   “Piret sale” la defined  by Art.
8.01(h) as follows:
         “(h) The words ‘Flrst Sale’ shall mean and
         Include the first  sale or distribution  of
         cigars or tobacco products In Intrastate
         commerce in the State of Texas or the first
         use or consumption of cigars or tobacco
         products within this State.”
         The distributor  making this first    sale is required to
remit the tax due on the transaction    (Art. 8.03),  and to
accompany these remittances   with reports to your office    on or
before the tenth of each month.    (Art. 8.04).
          Art. 8.03(b)    and (c), quoted above In your letter,
sets up.two classifications      of cigars weighing more than three
pounds per 1,000 for the purpose of measuring the tax due:
    Mr. Robert    S. Calvert,     Page 4           (Opinion   No. w-964)


    those “retailing”      for not more than 3.34 each and those
    “retailing”    for over 3.34 each. 1 The term ~‘retalllng”               1s
    not defined.      The normal connotation      of theterm       “retailing”
    would Indicate the amount paid by the ultimate consumer pur-
.   chasing these cigars from the retail          dealer.     However, such
    an Interpretation      in this case separates the tax base, or the
    factor upon which the tax Is calculated,            from the taxable
    Incident,    which 1s the “first      sale”.   If this Interpretation
    were followed,     the distributor     would be forced to collect           a
    tax measured by the terms of an event which has no occurred;
    that Is, the retail       sale to the. ultimate consumer. 8 He can
    only guess at what price the cigar will ultimately                be sold,
    and pay the tax accordingly.         Because the report and remittance
    of tax must be made soon after his sale to the retailer,                  the
    measuring event (sale at retail)          may aotually     occur after the
    tax has .already been remitted.         Further, we understand that
    the tax 1s tnrmally “passed on”; that Is, that the distributor
    simply adds the amount of the tax to the price paid him by the
    retail   dealer,    Such collection     would also of course have to
    be made upon a projected       estimate of the price at which the
    cigars In question will finally         be sold.      Such a construction
    might well render the tax statute so vague as to make It un-
    constitutional     and void.    Western Union Telegraph Co. v. State
    of Texas, 62 Tex. 639, (1884)           However, if we interpret          the
    term “retailing”     to mean the price at which the cigars are sold
    to the retail     dealer by the distributor,      ‘the uncertainty        Is
    removed.    The measuring base coincides         with the taxable Incident,
    and the amount of:tax is .fixed as of that time.               This Is ob-
    vlously the moat reasonable,        If not the only praotlcal,           lnter-
    pretatlon    of the Article.      It la settled that, to enable a
    reasonable lnterpretatlon       of legislative      lntent’,words     lna
    statute may be glvsn a possible,          though unusual, meaning.            State
    v. Pioneer Oil & Refining Co., 292 S.W. 869 (Tex.Com.App. im
                As further  substantiation   of this view, we note; your
      statement that, under the present interpretation.    basing  the tax
    .rate on retail    Sal98 price, no olgars fall within the tax
     presoribed   In Art. 8.02(b);   that is, the lower of the two tax

    i
      These ari the Only two ClaSSlflCatlOnS of Cigars in which price
    1s a factor in determination      of the tax due.
    2
      As you point out,.the   dlstrlbutor    or manufacturer may not
    dictate the mandatory retail      price of a olgar because of the
    1nhibltlor.k  of our anti-trust    laws.
-   .




        Mr. Robert   S. Calvert,   Page 5      (Opinion   No. w-964)


        classlflcatlons      under consideration.    This would constitute      Art.
        &02(b)     worthless leglslatlon     and, as has often been said, the
        Legislature     will not be presumed to have done a vain thing.
        Greene v. Roblson, 109 Tex. 367, 210 S.W. 498 (1919).            If we
        measure the tax by the price paid upon the first        sale, however,
        both provlalons      of the Article   come Into play In classlfi.catlon
        for tax purposes and have meaning.

                                             SUMMARY
                       The tax on olgare levied by Art. 8.02(b)
                  and (c), Title 122A, Taxation-General,    R.C.S.,
                  should be calculated   upon the price received
                  by the distributor   or person making the "first
                  sale" of the cigars in Intrastate    commerce and
                  not upon the price at which such cigars are
                  ultimately  sold at retail.

                                                Yours very truly,
                                                WILL WILSON
                                                Attorney General     of Texas




        JR1:jp
        APPROVED:
        OPINION COMMITTEE:
        W. V. Geppert, Chairman
        Bill Allen
        Martha Joe Stroud
        Joe McMaster
        REVIEWEDFOR THE ATTORNEY
                               GENERAL
        By: Leonard Passmore
