By: Thierry, Burrows, Noble, Button, Cortez H.B. No. 4772

A BILL TO BE ENTITLED

AN ACT

relating to an excise tax on, and storage, reporting, and recordkeeping requirements for, certain nontobacco nicotine products; providing a civil penalty; imposing a tax.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subtitle E, Title 2, Tax Code, is amended by adding Chapter 164 to read as follows:

CHAPTER 164. EXCISE TAX ON NONTOBACCO NICOTINE PRODUCTS

Sec. 164.0001. DEFINITIONS. In this chapter:

(1) "Alternative nicotine product" means any noncombustible product containing nicotine that is intended for human consumption, whether chewed, absorbed, dissolved, ingested, inhaled, or consumed by any other means. The term does not include:

(A) an e-cigarette;

(B) a cigarette, as defined by Section 154.001;

(C) a tobacco product, as defined by Section 155.001; or

(D) a product regulated as a drug or device by the United States Food and Drug Administration.

(2) "Closed-system e-cigarette" means an e-cigarette that utilizes a nicotine solution in a sealed and prefilled container that makes the nicotine solution inaccessible to the consumer through customary or reasonably foreseeable handling or use, other than use by inhaling vapor or aerosol produced from the nicotine solution. The term includes a disposable e-cigarette and a sealed, prefilled, and disposable container of nicotine solution for use in an e-cigarette.

(3) "Commercial business location" means the entire premises occupied by a retailer.

(4) "E-cigarette" means a noncombustible product that:

(A) produces vapor or aerosol for inhalation from the application of a heating element to a solution that contains nicotine; and

(B) includes a solution that contains nicotine intended for use in an e-cigarette, whether sold with the e-cigarette or separately.

(5) "First sale" means, except as otherwise provided by this chapter:

(A) the first transfer of possession in connection with a purchase, sale, or any exchange for value of an e-cigarette or an alternative nicotine product in or into this state, which:

(i) includes the sale of an e-cigarette or an alternative nicotine product by:

(a) a distributor in or outside this state to a distributor, wholesaler, or retailer in this state; and

(b) a manufacturer in this state who transfers the e-cigarette or alternative nicotine product in this state; and

(ii) does not include:

(a) the sale of an e-cigarette or an alternative nicotine product by a manufacturer outside this state to a distributor in this state;

(b) the transfer of an e-cigarette or an alternative nicotine product from a manufacturer outside this state to a bonded agent in this state; or

(c) the sale of an e-cigarette or an alternative nicotine product by a manufacturer, bonded agent, distributor, or importer to an interstate warehouse in this state;

(B) the first use or consumption of an e-cigarette or an alternative nicotine product in this state; or

(C) the loss of an e-cigarette or an alternative nicotine product in this state whether through negligence, theft, or other unaccountable loss.

(6) "Manufacturer's representative" means a person employed by a manufacturer to sell or distribute the manufacturer's e-cigarettes or alternative nicotine products for which the tax imposed under this chapter has been paid.

(7) "Open-system e-cigarette" means an e-cigarette that utilizes a nicotine solution in a container that is refillable or otherwise makes the nicotine solution accessible to the consumer through customary or reasonably foreseeable handling or use.

(8) "Retailer" means a person:

(A) required to hold a permit under Chapter 147, Health and Safety Code; or

(B) who sells alternative nicotine products to consumers.

Sec. 164.0002. DESIGNATION OF COMMERCIAL BUSINESS LOCATION AS PRINCIPAL PLACE OF BUSINESS; STORAGE. (a) A retailer shall designate one commercial business location as the retailer's principal place of business.

(b) Except as provided by Subsection (c), a commercial business location where e-cigarettes or alternative nicotine products are stored cannot be a residence or a unit in a public storage facility.

(c) A manufacturer's representative may use a residence or storage facility as a commercial business location.

Sec. 164.0003. TAX IMPOSED ON FIRST SALE. (a) A tax is imposed and becomes due and payable when a person receives an e-cigarette or alternative nicotine product for the purpose of making a first sale in this state.

(b) The tax rate:

(1) for a closed-system e-cigarette is seven cents for each milliliter of nicotine solution and a proportionate rate on all fractional parts of a milliliter of nicotine solution;

(2) for an open-system e-cigarette is three percent of the wholesale cost price of the open-system e-cigarette; and

(3) for an alternative nicotine product is $1.22 per ounce of net weight of the alternative nicotine product, as listed by the manufacturer.

Sec. 164.0004. FINAL POINT OF IMPOSITION OF TAX. The ultimate consumer of an e-cigarette or alternative nicotine product in this state shall pay the tax imposed by this chapter. If another person pays the tax, the amount of the tax is added to the price charged to the ultimate consumer.

Sec. 164.0005. PAYMENT OF TAX. (a) A person shall pay the tax on an e-cigarette or alternative nicotine product received for the purpose of making a first sale at the time the person files the report under Section 164.0010 in the manner prescribed by the comptroller.

(b) The person in possession of an e-cigarette or alternative nicotine product has the burden to prove payment of the tax on that product.

Sec. 164.0006. PENALTY FOR FAILURE TO PAY TAX. (a) Subject to Subsection (c), a person who fails to pay the tax when due under Section 164.0005 shall pay an additional five percent of the amount of the tax due as a penalty.

(b) A person who fails to pay the tax imposed under this chapter and penalty imposed under Subsection (a), as applicable, before the 31st day after the date that the tax is due shall pay, in addition to the amount required under Subsection (a), an additional five percent of the amount of the tax due as a penalty.

(c) The minimum penalty imposed by this section is $50.

(d) The dishonor of a check delivered to the treasury or other form of payment for payment of taxes constitutes a failure to pay the tax when due.

(e) The attorney general shall bring a suit to collect a penalty for late payment of a tax imposed under this section. A suit to collect a penalty under this section may be brought in a court of competent jurisdiction in Travis County.

Sec. 164.0007. RECORDS OF PURCHASES AND RECEIPTS. (a) A person who receives an e-cigarette or an alternative nicotine product for the purpose of making a first sale shall maintain at each place of business the records of all e-cigarettes or alternative nicotine products purchased or received.

(b) A retailer shall maintain all records described by Subsection (a) at the commercial business location designated by the retailer under Section 164.0002.

(c) The records maintained under this section must include:

(1) the name and address of the shipper or carrier and the mode of transportation;

(2) all shipping records or copies of records, including invoices, bills of lading, waybills, freight bills, and express receipts;

(3) the date and the name of the place of origin of the e-cigarette or alternative nicotine product shipment;

(4) the date and the name of the place of arrival of the e-cigarette or alternative nicotine product shipment;

(5) a statement of the number, kind, and price paid for the e-cigarettes or alternative nicotine products;

(6) the number of milliliters of nicotine solution for use in a closed-system e-cigarette;

(7) the name, address, and tax identification number of the seller;

(8) the manufacturer's wholesale price for the e-cigarette or alternative nicotine product;

(9) the net weight as listed by the manufacturer of each unit of alternative nicotine product, measured in ounces; and

(10) any other information required by the comptroller.

Sec. 164.0008. RECORDS OF SALE AND USE. (a) A person who receives an e-cigarette or alternative nicotine product for the purpose of making a first sale shall maintain at each place of business in this state records of each sale, distribution, exchange, or use of an e-cigarette or an alternative nicotine product, regardless of whether subject to a tax imposed by this chapter.

(b) The records maintained under this section must include:

(1) the purchaser's name and address, permit number, or tax identification number;

(2) the method of delivery and the name of the common carrier or other person delivering the e-cigarettes or alternative nicotine products;

(3) the date, amount, and kind of e-cigarettes or alternative nicotine products sold, distributed, exchanged, or used;

(4) the number of milliliters of nicotine solution for use in a closed-system e-cigarette sold, distributed, exchanged, or used;

(5) the wholesale price of all open-system e-cigarettes sold, distributed, exchanged, or used;

(6) the price received for the e-cigarettes or alternative nicotine products;

(7) the number and kind of e-cigarettes or alternative nicotine products on which the tax has been paid;

(8) the net weight as listed by the manufacturer for each unit of alternative nicotine product, measured in ounces; and

(9) any other information required by the comptroller.

(c) In addition to the records maintained under Subsection (a), a person required to maintain records under that subsection shall prepare and retain:

(1) an original invoice for each transaction involving an e-cigarette or an alternative nicotine product; and

(2) any supporting documentation relevant to each transaction showing shipment and receipt used in preparing the invoices at the place of business, including all bills of lading.

(d) A person required to prepare and retain an invoice under Subsection (c) shall deliver a duplicate invoice to the purchaser.

(e) A person required to maintain, prepare, or retain any record described by this section shall maintain all records, as applicable, for at least four years after the date of the transaction.

(f) On request of the comptroller, the person shall provide the records to the comptroller in a manner prescribed by the comptroller.

Sec. 164.0009. FAILURE TO PRODUCE RECORDS. (a) Except as provided by Subsection (b), a person's failure to produce a record on request of the comptroller under Section 164.0007 or 164.0008 is prima facie evidence that e-cigarettes and alternative nicotine products not accounted for in a requested report were received for the purpose of making a first sale without payment of a tax required under this chapter.

(b) This section does not apply to a person's failure to produce a record that results from an occurrence beyond the person's reasonable control.

Sec. 164.0010. MONTHLY REPORT. (a) A person who receives an e-cigarette or alternative nicotine product for the purpose of making a first sale shall file a report for the preceding month on or before the 25th day of each month.

(b) Except as provided by Subsection (c), the report filed under Subsection (a) must include:

(1) the date the person submitted the report;

(2) the name and address of the person submitting the report;

(3) the applicable month covered by the report;

(4) the number of units or amount, as applicable, of e-cigarettes and alternative nicotine products the person purchased, received, and acquired during the month covered by the report, with separately stated amounts for:

(A) milliliters of nicotine solution for use in a closed-system e-cigarette;

(B) the wholesale price of all open-system e-cigarettes; and

(C) the net weight as listed by the manufacturer of all alternative nicotine products, measured in ounces;

(5) the number of units or amount, as applicable, of e-cigarettes and alternative nicotine products the person sold, distributed, used, lost, or otherwise disposed of during the month covered by the report, with separately stated amounts for:

(A) milliliters of nicotine solution for use in a closed-system e-cigarette;

(B) the wholesale price of all open-system e-cigarettes; and

(C) the net weight as listed by the manufacturer of all alternative nicotine products, measured in ounces;

(6) the amount of e-cigarettes and alternative nicotine products the person had in stock at the beginning and at the end of the month covered by the report; and

(7) any other information required by the comptroller.

(c) If more than 50 percent of all untaxed e-cigarettes or alternative nicotine products received by the person in this state are actually sold outside of this state, the person may include in the report only the e-cigarettes or alternative nicotine products, as applicable, that are sold in this state.

(d) The comptroller shall prescribe the form and method for submitting the report under this section.

Sec. 164.0011. INSPECTION. (a) To determine the tax liability of a person under, or compliance by a person with, this chapter, the comptroller may:

(1) inspect any premises where e-cigarettes or alternative nicotine products are manufactured, produced, stored, transported, sold, or offered for sale or exchange;

(2) remain on the premises as long as necessary to determine the tax liability under or compliance with this chapter;

(3) examine the records required by this chapter or other records, books, documents, papers, accounts, and objects that the comptroller determines are necessary for conducting a complete examination; and

(4) examine stocks of e-cigarettes or alternative nicotine products.

(b) A person:

(1) must, on request of the comptroller, produce records required by this chapter; and

(2) may not hinder or prevent the comptroller's inspection of records or the examination of the premises under this section.

Sec. 164.0012. SEIZURE. (a) The comptroller with or without process may seize:

(1) e-cigarettes and alternative nicotine products that are possessed or controlled by a person for the purpose of selling or removing the e-cigarettes or alternative nicotine products in violation of this chapter;

(2) e-cigarettes and alternative nicotine products that are removed, deposited, or concealed by a person intending to avoid payment of taxes imposed by this chapter;

(3) an automobile, truck, boat, conveyance, or other type of vehicle used to remove or transport e-cigarettes or alternative nicotine products by a person intending to avoid payment of taxes imposed by this chapter; and

(4) equipment, paraphernalia, or other tangible personal property used by a person intending to avoid payment of taxes imposed by this chapter found in the place where the e-cigarettes or alternative nicotine products are found.

(b) An item seized under this section is forfeited to the state and remains in the custody of the comptroller for disposition as provided by this chapter. The seized item is not subject to replevin.

Sec. 164.0013. PENALTIES. (a) A person violates this chapter if the person does not:

(1) keep records required by this chapter;

(2) make a report required by this chapter to the comptroller or the person makes a false or incomplete report required by this chapter to the comptroller; or

(3) abide by, or the person violates, any other provision of this chapter or a rule adopted by the comptroller under this chapter.

(b) A person who violates this chapter shall pay the state a penalty of not more than $2,000 for each violation.

(c) A person is liable for a separate penalty for each day on which a violation occurs.

(d) The attorney general shall bring suit to recover penalties under this section.

(e) A suit under this section may be brought in a court of competent jurisdiction in Travis County.

Sec. 164.0014. RULES. The comptroller shall adopt rules as necessary to implement, administer, and enforce this chapter in a manner substantively similar to rules adopted for implementation, administration, and enforcement provided by Chapters 154 and 155.

Sec. 164.0015. DISPOSITION AND USE OF PROCEEDS. The comptroller shall deposit the proceeds from taxes imposed under this chapter as follows:

(1) 50 percent to the credit of an account in the general revenue fund administered by the Department of State Health Services, which may be appropriated to the department only for the purpose of administering youth vaping prevention and awareness programs;

(2) 20 percent to the credit of an account in the general revenue fund administered by the comptroller, which may be appropriated to the comptroller only for the purpose of administering and enforcing this chapter; and

(3) the remainder to the credit of the property tax relief fund.

SECTION 2. The change in law made by this Act does not affect tax liability accruing before the effective date of this Act.

SECTION 3. This Act takes effect September 1, 2023.