In September 2020, the California Department of Tax and Fee Administration (CDTFA) revoked previously issued Special Notice L-698 by issuing Special Notice L-778.  Special Notice L-698 was issued in August 2019 and it attempted to impose an excise tax collection requirement on licensed out-of-state tobacco distributors making sales to licensed tobacco wholesalers located in California. 

Special Notice L-698 was controversial when it was issued because the imposition of excise tax on out-of-state distributors required them to collect the excise tax on the non-discounted selling price to its wholesaler customers, contrary to historical practices.  The California Cigarette and Tobacco Products Tax Laws impose an excise tax on the wholesale cost of the tobacco products sold by a distributor, it does not impose an excise tax on the selling price of tobacco products.  As a result, Special Notice L-698 appeared to be in direct conflict with existing law and historical practices.  Further, no changes had been made to the existing law to prompt the notice that was issued by the CDTFA.  Based on the revocation of the notice, it appears that the CDTFA realized it could not affect a change in the law by issuing a special notice.

The issuance and subsequent withdrawal of Special Notice L-698 may have caused some distributors to over collect excise tax from their wholesale customers.  As a result, some wholesalers may be due a refund of excess taxes paid to their distributors from October 1, 2019, through September 2020.  In fact, Special Notice L-778 states that distributors who overpaid excise taxes may file a claim for refund for taxes overpaid based on reliance on Special Notice L-698. 

If you are an out-of-state licensed distributor or a California wholesaler that overpaid excise taxes on your purchases or sales of tobacco products, please feel free to contact our office at to receive a free consultation on how you may be able to receive a refund of the overpaid tax.

Mitchell Stradford

Mitchell Stradford

Mitchell Stradford is a former senior sales and use tax auditor with the California State Board of Equalization. Mitch leads McClellan Davis’ efforts to advocate on behalf of the cigarette and tobacco industry. He graduated from California State University Sacramento with a B.S. in Business Administration with a concentration in accountancy. Email Mitchell

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