PART 1. COMPTROLLER OF PUBLIC ACCOUNTS
CHAPTER 3. TAX ADMINISTRATION
SUBCHAPTER JJ. CIGARETTE, E-CIGARETTE, AND TOBACCO PRODUCTS REGULATION
34 TAC §3.1206
The Comptroller of Public Accounts proposes new §3.1206, concerning delivery sales of e-cigarettes. This section implements Senate Bill 97, 84th Legislature, 2015, amending Health and Safety Code, Chapter 161, Subchapter R (Delivery Sales of Cigarettes and E-Cigarettes). The section is located in Title 34, Chapter 3, Subchapter JJ.
Subsection (a) provides definitions of the terms that relate to delivery sales. Paragraphs (1), (2), and (4) define the terms "delivery sale," "delivery service," and "shipping documents," respectively, using the definitions given in Health and Safety Code, §161.451 (Definitions). The definition of "delivery sale" contains additional language to clarify what is not considered a delivery sale. Paragraph (3) provides the definition of the term "e-cigarettes" given in Health and Safety Code, §161.081(1-a) (Definitions). Paragraph (5) defines the term "seller" in relation to e-cigarettes. The definition is derived from the following sections of the Health and Safety Code: §161.452(c) (Requirements for Delivery Sales), which sets out the compliance responsibilities of a "person taking a delivery sale order;" §161.453(c) (Age Verification Requirements), describing a person who both accepts delivery sale orders and mails or ships e-cigarettes in connection with a delivery sale order; §161.455(a-1) (Shipping Requirements), which applies to a person who mails or ships e-cigarettes in connection with a delivery sale order; and §161.455(b), which applies to a person taking delivery sale orders.
Subsection (b) describes the permitting, registration, and tax collection responsibilities of sellers making delivery sales of e-cigarettes. Paragraph (1) explains that sellers engaged in business in Texas must have sales and use tax permits. This paragraph is consistent with §3.286(b)(1) and (2) of this title (relating to Seller's and Purchaser's Responsibilities, including Nexus, Permits, Returns and Reporting Periods, and Collection and Exemption Rules). Paragraph (2) implements Health and Safety Code, §161.456 (Registration and Reporting Requirements), which requires sellers to file a registration statement with the comptroller before making delivery sales in this state or shipping e-cigarettes in this state in connection with a delivery sale. This paragraph also makes clear that the registration requirement is not limited to sellers engaged in business in Texas. Paragraph (3) describes the collection and tax payment requirements that apply to e-cigarette sellers engaged in business in Texas. This paragraph is based on Health and Safety Code, §161.452(c)(5) (Requirements for Delivery Sales) and §161.457 (Collection of Taxes).
Subsection (c) implements Health and Safety Code, §161.454(b) (Disclosure Requirements) by providing the wording of the disclosure notice sellers must send to purchasers.
Subsection (d) describes the age verification responsibilities of sellers making delivery sales. This is based on Health and Safety Code, §161.452(c)(1), which says that a person taking a delivery sale order of e-cigarettes "shall comply with the age verification requirements prescribed by Section 161.453." The subsection provides the age verification requirements of Health and Safety Code, §161.453(c) and (d).
Subsection (e) explains the notice that sellers must include with the shipping documents for a delivery sale. This subsection implements Health and Safety Code, §161.455.
Subsection (f) provides information on delivery sale reporting requirements. Paragraph (1) specifies the documents that all sellers and persons who deliver e-cigarettes in connection with delivery sales are required to file, as well as the due date for filing the required information. Paragraph (2) is added to implement the exemption from the delivery sale filing requirement provided by Health and Safety Code, §161.456(d) and memorializes the comptroller's understanding that sellers who commit certain violations lose the exemption and are required to submit delivery sale filings for two years following the violation. Paragraph (3) provides information on the prior period filing requirements of a seller who commits a violation, including a seller who commits a violation but does not have two years of prior delivery sales history.
Subsection (g) describes the statutory penalties for violating the requirements of this section. Paragraph (1) implements Health and Safety Code, §161.458 (General Offenses) relating to criminal penalties and implements Health and Safety Code, §161.459 (Knowing Violation), which establishes a criminal penalty for knowingly violating the provisions of this section. Paragraph (2) provides the penalties imposed for failing to pay sales and use tax. This penalty is in addition to any penalty imposed by Tax Code, Chapter 151. This implements Health and Safety Code, §161.460 (Civil Penalty for Non-Payment of Tax). Paragraph (3) implements Health and Safety Code, §161.461 (Forfeiture).
Tom Currah, Chief Revenue Estimator, has determined that for the first five-year period the rule will be in effect, there will be no significant revenue impact on the state or units of local government.
Mr. Currah also has determined that for each year of the first five years the rule is in effect, the public benefit anticipated as a result of enforcing the rule will be by implementing recent statutory changes and by providing clear guidance to businesses. This rule is proposed under Tax Code, Title 2, and does not require a statement of fiscal implications for small businesses. There is no significant anticipated economic cost to individuals who are required to comply with the proposed rule.
Comments on the proposal may be submitted to Teresa G. Bostick, Director, Tax Policy Division, P.O. Box 13528, Austin, Texas 78711-3528. Comments must be received no later than 30 days from the date of publication of the proposal in the Texas Register.
The section is proposed under Tax Code, §111.002 (Comptroller's Rules; Compliance; Forfeiture) and §111.0022 (Application to Other Laws Administered by Comptroller), which provide the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of the Tax Code, Title 2, and taxes, fees, or other charges that the comptroller administers under other law.
The section implements legislative changes to Health and Safety Code, Chapter 161, Subchapter H (Distribution of Cigarettes, E-Cigarettes, or Tobacco Products) and Subchapter R (Delivery Sales of Cigarettes and E-Cigarettes).
§3.1206.Delivery Sales of E-Cigarettes (Health and Safety Code, Chapter 161, Subchapter R).
(a) Definitions. The following words and terms, when used in this section shall have the following meanings, unless the context clearly indicates otherwise.
(1) Delivery sale--A sale of e-cigarettes to a consumer in Texas regardless of whether the seller is located outside or within Texas:
(A) in which the purchaser submits the order for the sale:
(i) by telephone or any other method of voice transmission;
(ii) by mail or any other delivery service; or
(iii) through the Internet or other on-line service; or
(B) in which the e-cigarettes are delivered by mail or other delivery service;
(C) the term does not include a sale of e-cigarettes for resale to a person who is a wholesale dealer or a retail dealer.
(2) Delivery service--A person, including the United States Postal Service, who is engaged in the commercial delivery of letters, packages, or other containers.
(3) E-cigarette--An electronic cigarette or any other device that simulates smoking by using a mechanical heating element, battery, or electronic circuit to deliver nicotine or other substances to the individual inhaling from the device. The term includes a prescription medical device related to the cessation of smoking. The term also includes:
(A) a device described in paragraph (3) regardless of whether the device is manufactured, distributed, or sold as an e-cigarette, e-cigar, or e-pipe or under another product name or description; and
(B) a component, part, or accessory for the device, regardless of whether the component, part, or accessory is sold separately from the device.
(4) Shipping document--A bill of lading, airbill, United States Postal Service form, or any other document used to document a shipment of a delivery sale.
(5) Seller--A person, located outside or within Texas, who takes or accepts delivery sale orders or who mails or ships e-cigarettes in connection with a delivery sale.
(b) Seller responsibilities.
(1) Sales and use tax permit. A seller who is engaged in business in Texas, or who intends to engage in business in Texas, must obtain a sales and use tax permit from the comptroller's office as described in §3.286 of this title (relating to Seller's and Purchaser's Responsibilities, including Nexus, Permits, Returns and Reporting Periods, and Collection and Exemption Rules).
(2) Delivery sale registration.
(A) Before making a delivery sale of e-cigarettes in Texas, a seller must file a statement with the comptroller that includes:
(i) seller's name and trade name;
(ii) the address of the seller's principal place of business and any other place of business;
(iii) the seller's telephone number; and
(iv) the seller's e-mail address.
(B) The registration requirement described in this paragraph applies to all sellers, whether they are within or outside of Texas and regardless of whether they are engaged in business in Texas.
(3) Collection and payment of taxes. As provided in Tax Code, Chapter 151 (Limited Sales, Excise, and Use Tax), a seller engaged in business in Texas is required to collect and remit to the comptroller's office sales and use tax on all e-cigarette sales made in Texas. For more information on sales and use tax collection responsibilities, refer to §3.286 of this title.
(c) Notice to purchasers. A delivery sale of an e-cigarette must include a prominent and clearly legible statement that:
(1) Texas law prohibits e-cigarette sales to individuals younger than 18 years of age; and
(2) sales of e-cigarettes are restricted to individuals who can provide verifiable proof of age.
(d) Age verification. A seller taking a delivery sale order must verify that the purchaser is at least 18 years of age.
(1) Unless the seller is eligible to use the age verification methods described in paragraph (2), each seller who makes a delivery sale must:
(A) verify the age of the prospective purchaser through a commercially available database or an aggregate of databases that is regularly used for the purpose of age and identity verification before accepting a delivery sale order; and
(B) use a method of mailing or shipping the e-cigarettes that requires an adult signature.
(2) A seller located in Texas who primarily makes retail sales of e-cigarettes, and complies with applicable laws relating to such retail sales, may verify the age of a purchaser placing a delivery sale order by:
(A) verifying the age of the prospective purchaser with a commercially available database or a photocopy or other image of a government-issued identification bearing a photograph of the prospective purchaser and stating the date of birth or age of the prospective purchaser;
(B) obtaining a written statement signed by the prospective purchaser, under penalty of law, certifying the prospective purchaser's address and date of birth; and
(C) receiving payment for the delivery sale from the prospective purchaser by a credit card or debit card that has been issued in the prospective purchaser's name or by a check that is associated with a bank account in the prospective purchaser's name.
(e) Seller shipping requirements. A seller who mails, ships, or delivers e-cigarettes in connection with a delivery sale order must include as part of the shipping documents a clear and conspicuous statement: "E-CIGARETTES: TEXAS LAW PROHIBITS SHIPPING TO INDIVIDUALS YOUNGER THAN 18 YEARS OF AGE AND REQUIRES PAYMENT OF ALL APPLICABLE TAXES."
(f) Reporting requirements.
(1) Except as provided by paragraph (2) of this subsection, each seller who has made a delivery sale, and each person who has delivered e-cigarettes in connection with a delivery sale, is required to file a delivery sales report with the comptroller's office.
(A) For each delivery sale, a person must file a memorandum, or a copy of the invoice, that provides:
(i) the name, address, telephone number, and e-mail address of the individual to whom the delivery sale was made;
(ii) the brand or brands of the e-cigarettes that were sold; and
(iii) the quantity of e-cigarettes that were sold.
(B) A person may comply with the reporting requirement described in this paragraph by filing a Texas Cigarette/E-Cigarette Delivery Sales Report. The report is available on the comptroller's website.
(C) This filing is due on or before the 10th day of each month based on delivery sales made in the previous month. The first report is due November 10, 2015.
(2) A person is exempt from the filing requirements in this subsection, if in the preceding two years from the date the report is due, the person is not in violation of the requirements under Health and Safety Code, Chapter 161, Subchapter R (Delivery Sales of Cigarettes and E-Cigarettes), and has not been reported under §161.090 (Reports of Violations) to the comptroller for violating Health and Safety Code, Chapter 161, Subchapter H (Distribution of Cigarettes, E-Cigarettes, or Tobacco Products). A person may be exempt from the delivery sale filing requirements even if the person does not have a two-year history of delivery sales, provided that during the time the person has been in business, the person has not committed a violation and has not been reported to the comptroller under Health and Safety Code, §161.090.
(3) If a person violates the requirements under Health and Safety Code Chapter 161, Subchapter R, or is reported to the comptroller under §161.090 for violating Health and Safety Code, Chapter 161, Subchapter H, the person must comply with the monthly filing requirements described in this subsection for the previous two years for each delivery sale in this state. A person who does not have two years of prior delivery sales will file the information from its first day of business, but no earlier than October 1, 2015, unless the report has already been filed.
(g) Violations and Penalties.
(1) Criminal Penalties.
(A) Knowing violation. A person who knowingly violates the requirements for delivery sales of e-cigarettes in Health and Safety Code, Chapter 161, Subchapter R, commits a felony of the third degree.
(B) Other violation. Any violation of the requirements for delivery sales of e-cigarettes in Health and Safety Code, Chapter 161, Subchapter R for which a criminal penalty is not otherwise provided is a Class C misdemeanor for a first offense and a Class B misdemeanor for subsequent offenses.
(2) Civil penalty. In addition to any other penalty, a seller who fails to remit the sales and use tax due in connection with a delivery sale must pay to the state a civil penalty in an amount equal to five times the amount of tax due.
(3) Forfeiture of e-cigarettes and property. E-cigarettes that a seller sold or attempted to sell in a delivery sale that does not comply with Health and Safety Code, Chapter 161, Subchapter R, are forfeited to the state and will be destroyed. Any equipment, material, or other personal property on the premises of a seller who, with the intent to defraud the state, fails to comply with the provisions of Health and Safety Code, Chapter 161, Subchapter R, is also forfeited to the state.
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on December 19, 2016.
Comptroller of Public Accounts
Earliest possible date of adoption: January 29, 2017
For further information, please call: (512) 475-0387