88R9797 BEF-D

By: Harris of Anderson H.B. No. 4865

A BILL TO BE ENTITLED

AN ACT

relating to the taxation of cigars, tobacco products, and oral nicotine products; providing penalties; creating criminal offenses; requiring and expanding the applicability of occupational permits; imposing a tax.

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

SECTION 1. Section 155.001, Tax Code, is amended by adding Subdivisions (1-a), (5-a), (5-b), (12-a), (13-b), (13-c), (14-a), (14-b), and (14-c) and amending Subdivisions (2), (8), (12), (14), and (15) to read as follows:

(1-a) "Chewing tobacco" means any leaf tobacco that is not intended to be smoked, other than moist snuff.

(2) "Cigar" means a roll of [fermented] tobacco [that is] wrapped in tobacco leaf or in another substance containing tobacco. The term does not include a cigarette as defined by Section 154.001 [and the main stream of smoke from which produces an alkaline reaction to litmus paper].

(5-a) "Delivery sale" means any sale of chewing tobacco, snuff, or roll-your-own tobacco to a consumer in this state if:

(A) the consumer submits the order by means of a telephone or another method of voice transmission, the mail, the Internet or another online service, or by other means where the seller is otherwise not in the physical presence of the consumer when the order is made; or

(B) the chewing tobacco, snuff, or roll-your-own tobacco is delivered to the consumer by common carrier, private delivery service, or other method of remote delivery or the seller is otherwise not in the physical presence of the consumer when the consumer obtains possession of the chewing tobacco, snuff, or roll-your-own tobacco.

(5-b) "Delivery seller" means a person located inside this state who makes delivery sales of chewing tobacco, snuff, or roll-your-own tobacco.

(8) "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 tobacco products in or into this state, which:

(i) includes the sale of tobacco products 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 tobacco products in this state; and

(ii) does not include:

(a) the sale of tobacco products by a manufacturer outside this state to a distributor in this state;

(b) the transfer of tobacco products from a manufacturer outside this state to a bonded agent in this state; or

(c) the sale of tobacco products by a manufacturer, bonded agent, distributor, or importer to an interstate warehouse in this state;

(B) the first transfer of possession in connection with a remote retail sale of cigars or pipe tobacco in or into this state, which includes the sale of cigars or pipe tobacco by a remote retail seller outside this state to a consumer in this state;

(C) the first use or consumption of tobacco products in this state; or

(D) [(C)] the loss of tobacco products in this state whether through negligence, theft, or other unaccountable loss.

(12) "Permit holder" means a bonded agent, interstate warehouse, distributor, wholesaler, manufacturer, importer, export warehouse, remote retail seller, or retailer who obtains a permit under Section 155.041.

(12-a) "Pipe tobacco" means any tobacco which, because of its appearance, type, packaging, or labeling, is suitable for use and is likely to be offered to or purchased by consumers as tobacco to be smoked in a pipe.

(13-b) "Remote retail sale" means any sale of cigars or pipe tobacco to a consumer in this state if:

(A) the consumer submits the order by means of a telephone or another method of voice transmission, the mail, the Internet or another online service, or by other means where the seller is otherwise not in the physical presence of the consumer when the order is made; or

(B) the cigars or pipe tobacco is delivered to the consumer by common carrier, private delivery service, or other method of remote delivery or the seller is otherwise not in the physical presence of the consumer when the consumer obtains possession of the cigar or pipe tobacco.

(13-c) "Remote retail seller" means a person located inside or outside this state who makes remote retail sales of cigars or pipe tobacco.

(14) "Retailer" means a person who engages in the business of selling tobacco products to consumers. The term [and] includes the owner of a vending machine and a delivery seller.

(14-a) "Roll-your-own tobacco" means any tobacco which, because of its appearance, type, packaging, or labeling, is suitable for use and likely to be offered to or purchased by consumers as tobacco for making cigarettes, cigars, or wrappers for cigarettes or cigars.

(14-b) "Sale" means any transfer, exchange, or barter for consideration. The term includes:

(A) a gift by a person engaged in the business of selling tobacco products for advertising, as a means of evading this chapter, or for any other purpose;

(B) the solicitation of orders for future delivery; and

(C) a sale for future delivery.

(14-c) "Snuff" means any finely cut, ground, or powdered tobacco that is not intended to be smoked.

(15) "Tobacco product":

(A) means:

(i) [(A)] a cigar;

(ii) pipe [(B) smoking] tobacco;

(iii) roll-your-own tobacco[, including granulated, plug-cut, crimp-cut, ready-rubbed, and any form of tobacco suitable for smoking in a pipe or as a cigarette];

(iv) [(C)] chewing tobacco[, including Cavendish, Twist, plug, scrap, and any kind of tobacco suitable for chewing]; and

(v) [(D)] snuff; and

(B) does not include:

(i) an oral nicotine product as defined by Section 164.001;

(ii) [or other preparations of pulverized tobacco; or

[(E) an article or product that is made of tobacco or a tobacco substitute and that is not] a cigarette as defined by Section 154.001; or

(iii) an e-cigarette as defined by Section 161.081, Health and Safety Code.

SECTION 2. Sections 155.021(a) and (c), Tax Code, are amended to read as follows:

(a) A tax is imposed and becomes due and payable when:

(1) a permit holder receives cigars for the purpose of making a first sale in this state; or

(2) a remote retail seller located outside this state makes a first sale of cigars to a consumer in this state.

(c) Cigars taxed under Subsections (b)(3) and (b)(4) of this section are presumed to contain a substantial amount of nontobacco ingredients unless the report on the cigars required by Section 155.111 [of this code] is accompanied by an affidavit stating that specific cigars described in the report do not contain sheet wrapper, sheet binder, or sheet filler. If the manufacturer prepares the report, the manufacturer shall make the affidavit. If the distributor prepares the report, the manufacturer and the distributor shall make the affidavit. If the remote retail seller prepares the report, the manufacturer and the remote retail seller shall make the affidavit.

SECTION 3. Section 155.0211(a), Tax Code, is amended to read as follows:

(a) A tax is imposed and becomes due and payable when:

(1) a permit holder receives tobacco products, other than cigars, for the purpose of making a first sale in this state; or

(2) a remote retail seller located outside this state makes a first sale of pipe tobacco to a consumer in this state.

SECTION 4. Subchapter B, Chapter 155, Tax Code, is amended by adding Section 155.0235 to read as follows:

Sec. 155.0235. OUT-OF-STATE REMOTE RETAIL SELLERS: LIABILITY FOR AND PAYMENT OF TAX. (a) A permitted remote retail seller located outside this state who makes a first sale of cigars or pipe tobacco to a consumer in this state is liable for and shall pay the tax imposed by this chapter.

(b) A remote retail seller located outside this state shall pay the tax on cigars and pipe tobacco sold to consumers in this state at the time the remote retail seller files the report required by Section 155.1115. The remote retail seller shall pay the tax by cashier's check payable to the comptroller, by electronic funds transfer to the comptroller, or by any other method of payment authorized by the comptroller.

SECTION 5. Section 155.026(a), Tax Code, is amended to read as follows:

(a) A distributor or remote retail seller who fails to timely pay the tax when due shall pay five percent of the amount of tax then due as a penalty, and if the distributor or remote retail seller fails to pay the tax on or before the 30th day after the day on which the tax is due, the distributor or remote retail seller shall pay an additional five percent of the amount of tax then due.

SECTION 6. Sections 155.041(a), (b), and (h), Tax Code, are amended to read as follows:

(a) A person may not engage in business as a distributor, wholesaler, bonded agent, interstate warehouse, manufacturer, export warehouse, importer, remote retail seller, or retailer unless the person has applied for and received the applicable permit from the comptroller.

(b) Each distributor, wholesaler, bonded agent, interstate warehouse, manufacturer, export warehouse, importer, remote retail seller, or retailer shall obtain a permit for each place of business owned or operated by the distributor, wholesaler, bonded agent, interstate warehouse, manufacturer, export warehouse, importer, remote retail seller, or retailer.

(h) Permits for engaging in business as a distributor, wholesaler, bonded agent, interstate warehouse, manufacturer, export warehouse, importer, remote retail seller, or retailer shall be governed exclusively by the provisions of this code.

SECTION 7. Section 155.0415, Tax Code, is amended by adding Subsection (k) to read as follows:

(k) A permitted remote retail seller may sell cigars and pipe tobacco only to a consumer in this state. A permitted remote retailer seller located in this state may purchase cigars and pipe tobacco from a permitted distributor or wholesaler in this state, notwithstanding any other provision of this section.

SECTION 8. Subchapter C, Chapter 155, Tax Code, is amended by adding Section 155.0416 to read as follows:

Sec. 155.0416. REMOTE RETAIL SELLER PERMIT. (a) A person located inside or outside this state may not make a remote retail sale of cigars or pipe tobacco to a consumer in this state unless the person holds a remote retail seller permit.

(b) Unless a remote retail seller located outside this state is exempt under comptroller rule from the requirement to obtain a permit under Section 151.201 based on annual revenue from sales to persons in this state, the remote retail seller shall:

(1) apply for and obtain a permit under Section 151.201; and

(2) collect and remit the taxes imposed under this chapter and Chapter 151.

(c) A remote retail seller shall use an independent, third-party age verification service that compares information available from a commercially available database, or aggregate of databases, that is regularly used by government agencies and businesses for the purpose of age and identity verification to verify the personal information entered by the individual during the ordering process and establish that the individual is of age.

SECTION 9. Section 155.048(a), Tax Code, is amended to read as follows:

(a) The comptroller shall issue a permit to a distributor, wholesaler, bonded agent, interstate warehouse, manufacturer, importer, remote retail seller, or retailer if the comptroller:

(1) has received an application and fee, if required;

(2) does not reject the application and deny the permit under Section 155.0481; and

(3) determines that issuing the permit will not jeopardize the administration and enforcement of this chapter.

SECTION 10. Section 155.049(b), Tax Code, is amended to read as follows:

(b) An application for a permit required by this chapter must be accompanied by a fee of:

(1) $300 for a bonded agent's permit;

(1-a) $300 for an interstate warehouse's permit;

(2) $300 for a distributor's permit;

(3) $200 for a wholesaler's permit;

(4) $15 for each permit for a vehicle if the applicant is also applying for a permit as a bonded agent, distributor, or wholesaler or has received a current permit from the comptroller under Sections 155.041 and 155.048; [and]

(5) $180 for a retailer's permit; and

(6) $180 for a remote retail seller's permit.

SECTION 11. Section 155.053, Tax Code, is amended by adding Subsection (d) to read as follows:

(d) This section does not apply to a remote retail seller permit holder.

SECTION 12. Section 155.058(a), Tax Code, is amended to read as follows:

(a) Except as provided by Subsection (b), revenue from the sale of permits to distributors, wholesalers, bonded agents, remote retail sellers, and interstate warehouses is allocated in the same manner that other revenue is allocated by Subchapter H.

SECTION 13. Section 155.101, Tax Code, is amended to read as follows:

Sec. 155.101. RECORD OF PURCHASE OR RECEIPT. (a) Each distributor, wholesaler, bonded agent, interstate warehouse, and export warehouse shall keep records at each place of business of all tobacco products purchased or received.

(b) Each retailer shall keep records at a single commercial business location, which the retailer shall designate as its principal place of business in the state, of all tobacco products purchased and received.

(c) Each remote retail seller shall keep records at the principal place of business location identified on the permit.

(d) The [These] records required by 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 tobacco product shipment;

(4) the date and the name of the place of arrival of the tobacco product shipment;

(5) a statement of the number, kind, and price paid for the tobacco products;

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

(7) in the case of a distributor, the manufacturer's list price for the tobacco products;

(8) for tobacco products other than cigars, the net weight as listed by the manufacturer for each unit; and

(9) any other information required by rules of the comptroller.

SECTION 14. Subchapter D, Chapter 155, Tax Code, is amended by adding Section 155.1115 to read as follows:

Sec. 155.1115. REMOTE RETAIL SELLERS: RECORDS AND REPORT. (a) Each remote retail seller shall keep records of the sale or other disposition of cigars and tobacco products as required by comptroller rule.

(b) A remote retail seller located outside this state shall file with the comptroller on or before the 25th day of each month a report for the preceding month. The report must show:

(1) the date the report was made;

(2) the remote retail seller's name and address;

(3) the month the report covers;

(4) the amount of cigars and pipe tobacco sold to consumers in this state; and

(5) any other information the comptroller requires relating to cigars and pipe tobacco and to the payment of taxes due on cigars and pipe tobacco.

(c) The comptroller shall prescribe the form and content of the report under Subsection (b).

SECTION 15. Section 155.201(a), Tax Code, is amended to read as follows:

(a) A person violates this chapter if the person:

(1) is a distributor, wholesaler, manufacturer, export warehouse, importer, bonded agent, interstate warehouse, manufacturer's representative, remote retail seller, or retailer and fails to keep records required by this chapter;

(2) engages in the business of a bonded agent, interstate warehouse, distributor, wholesaler, manufacturer, export warehouse, importer, remote retail seller, or retailer without a valid permit;

(3) is a distributor, wholesaler, manufacturer, export warehouse, importer, bonded agent, interstate warehouse, remote retail seller, or retailer and fails to make a report required by this chapter to the comptroller or makes a false or incomplete report or application required by this chapter to the comptroller; or

(4) is a person affected by this chapter and fails or refuses to abide by or violates a provision of this chapter or a rule adopted by the comptroller under this chapter.

SECTION 16. Section 155.207, Tax Code, is amended to read as follows:

Sec. 155.207. PERMITS. A person commits an offense if the person acting:

(1) as a distributor, interstate warehouse, wholesaler, or retailer, receives or possesses tobacco products without having a valid permit;

(2) as a distributor, interstate warehouse, wholesaler, or retailer, receives or possesses tobacco products without having a permit posted where it can be easily seen by the public;

(3) as a distributor, interstate warehouse, or wholesaler, does not deliver an invoice to the purchaser as required by Section 155.102;

(4) as a distributor, interstate warehouse, wholesaler, remote retail seller, or retailer, sells tobacco products without having a valid permit; or

(5) as a bonded agent, interstate warehouse, or export warehouse, stores, distributes, or delivers tobacco products on which the tax has not been paid without having a valid permit.

SECTION 17. Section 155.211(b), Tax Code, is amended to read as follows:

(b) This section does not prohibit transportation of tobacco products by a common carrier, including as part of a remote retail sale made by a permit holder.

SECTION 18. Subtitle E, Title 2, Tax Code, is amended by adding Chapter 164 to read as follows:

CHAPTER 164. ORAL NICOTINE PRODUCTS TAX

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 164.001. DEFINITIONS. (a) Except as otherwise provided by this section, terms defined by Chapter 155 and used in this chapter have the meanings assigned by Chapter 155, except that in this chapter the terms apply in relation to oral nicotine products instead of tobacco products.

(b) In this chapter:

(1) "Oral nicotine product" means a noncombustible product containing nicotine without the presence of tobacco leaf that is intended for oral consumption, whether chewed, absorbed, dissolved, or ingested, by a means other than inhalation. The term does not include:

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

(B) an e-cigarette, as defined by Section 161.081, Health and Safety Code; or

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

(2) "Permit holder" means a person who holds a permit issued under Section 155.041 as a bonded agent, interstate warehouse, distributor, wholesaler, manufacturer, importer, export warehouse, or retailer.

Sec. 164.002. STORAGE. (a) The commercial business location where oral nicotine products are stored or kept cannot be a residence or a unit in a public storage facility.

(b) This section does not apply to a manufacturer's representative.

Sec. 164.003. RULES. The comptroller may adopt rules to implement, administer, and enforce this chapter.

SUBCHAPTER B. IMPOSITION AND RATE OF TAX

Sec. 164.051. TAX IMPOSED ON ORAL NICOTINE PRODUCTS. (a) A tax is imposed and becomes due and payable when a person receives oral nicotine products for the purpose of making a first sale in this state.

(b) The rate of the tax is 120 cents per ounce.

(c) The computation of the tax under this section is based on the net weight as listed by the manufacturer on the can or package, rounded to the nearest one cent.

Sec. 164.052. LIABILITY FOR AND PAYMENT OF TAX. (a) The person who receives oral nicotine products for the purpose of making a first sale in this state is liable for the tax imposed by this chapter.

(b) The person liable for the tax under Subsection (a) shall pay the tax at the time the person files the report required by Section 164.151. The person shall pay the tax by cashier's check payable to the comptroller, by electronic funds transfer to the comptroller, or by any other method of payment authorized by the comptroller.

(c) A person in possession of oral nicotine products has the burden to prove payment of the tax on the products.

Sec. 164.053. EXCEPTION FOR PERSONAL USE. A person who personally transports oral nicotine products in quantities or amounts that would ordinarily retail at $4 or less is not required to pay the tax imposed by this chapter if the person uses the oral nicotine products and does not sell the products or offer the products for sale.

Sec. 164.054. PENALTY FOR FAILURE TO PAY TAX. (a) A person who fails to pay the tax when due is liable for a penalty in an amount equal to five percent of the amount of tax due. A person who fails to pay the tax on or before the 30th day after the date the tax is due is liable for an additional penalty in an amount equal to five percent of the amount of tax due.

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

(c) The dishonor of a check for payment of taxes constitutes a failure to pay the tax when due.

(d) Venue for a suit for collection of a penalty for late payment of taxes is in Travis County.

Sec. 164.055. IMPACT OF TAX. The ultimate consumer or user in this state bears the impact of 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 or user.

SUBCHAPTER C. PERMITS

Sec. 164.101. PERMITS. A permit issued under Section 155.041 applies to oral nicotine products in addition to and in the same manner as tobacco products.

SUBCHAPTER D. RECORDS AND REPORTS

Sec. 164.151. RECORDS; REPORTS. (a) A permit holder under Chapter 155 shall keep the same records for oral nicotine products as the person is required to keep for tobacco products.

(b) A permit holder under Chapter 155 shall make the same reports for oral nicotine products as the person is required to make for tobacco products.

SUBCHAPTER E. ADMINISTRATION AND ENFORCEMENT

Sec. 164.201. APPLICABILITY OF OTHER LAW. The provisions of Subchapters E, F, and G, Chapter 155, apply to oral nicotine products in the same manner as tobacco products.

SUBCHAPTER F. DISPOSITION OF REVENUE

Sec. 164.251. GENERAL REVENUE FUND. The revenue from the tax imposed by this chapter shall be deposited to the credit of the general revenue fund.

SECTION 19. Section 161.081(5), Health and Safety Code, is amended to read as follows:

(5) "Tobacco product" means a product that is:

(A) a cigar, as defined by Section 155.001, Tax Code;

(B) smoking tobacco, including granulated, plug-cut, crimp-cut, ready-rubbed, and any form of tobacco suitable for smoking in a pipe or as a cigarette;

(C) chewing tobacco, including Cavendish, Twist, plug, scrap, and any kind of tobacco suitable for chewing;

(D) snuff or other preparations of pulverized tobacco; or

(E) an article or product that is made of tobacco or a tobacco substitute and that is not a cigarette or an e-cigarette [has the meaning assigned by Section 155.001, Tax Code].

SECTION 20. Section 161.121(5), Health and Safety Code, is amended to read as follows:

(5) "Tobacco product" has the meaning assigned by Section 161.081 [155.001, Tax Code].

SECTION 21. Section 161.251(2), Health and Safety Code, is amended to read as follows:

(2) "Tobacco product" has the meaning assigned by Section 161.081 [155.001, Tax Code].

SECTION 22. Section 161.351(3), Health and Safety Code, is amended to read as follows:

(3) "Tobacco product" has the meaning assigned by Section 161.081 [155.001, Tax Code].

SECTION 23. Section 161.613(b), Health and Safety Code, is amended to read as follows:

(b) This subchapter does not apply to a tobacco product described by Section 155.001(15)(A)(iv) [155.001(15)(C)], Tax Code.

SECTION 24. Section 38.11(f)(4), Penal Code, is amended to read as follows:

(4) "Tobacco product" has the meaning assigned by Section 161.081, Health and Safety Code [155.001, Tax Code].

SECTION 25. Not later than January 1, 2024, the comptroller of public accounts shall adopt rules necessary to implement the changes in law made by this Act.

SECTION 26. Notwithstanding Section 155.0416, Tax Code, as added by this Act, a person who makes a remote retail sale of cigars or pipe tobacco is not required to hold a permit as a remote retail seller before April 1, 2024.

SECTION 27. Chapter 164, Tax Code, as added by this Act, applies only to oral nicotine products received on or after April 1, 2024, for the purpose of making a first sale in this state. Oral nicotine products received for that purpose before that date are governed by the law in effect immediately before the effective date of this Act, and the former law is continued in effect for that purpose.

SECTION 28. The changes in law made by this Act do not affect tax liability accruing before the effective date of this Act. That liability continues in effect as if this Act had not been enacted, and the former law is continued in effect for the collection of taxes due and for civil and criminal enforcement of the liability for those taxes.

SECTION 29. This Act takes effect September 1, 2023.