PACT Act Leaves Vapor Industry in a Haze
By: Lauren Stinson, CMI, Principal, Tax Services, Sales & Use Tax Leader and Josh Howell, Senior Manager, Strategic Tax Advisory Services
On December 27, 2020, Congress amended the Prevent All Cigarette Trafficking (“PACT”) Act to place additional state regulatory compliance burdens on interstate sellers of e-cigarettes and other vaping products. Prior to the amendment, the law largely applied to interstate cigarette sales and was intended to promote greater legal and tax compliance with respect to -the cigarette industry.
The amended law modified the definition of “cigarettes” to include Electronic Nicotine Delivery Systems (“ENDS”) into the amendment’s regulatory framework and broadly defined ENDS to include nearly all vaping products (hardware, liquids, salts, and other items) regardless of their nicotine content. Consequently, vapor products sellers found themselves with 90 days from the enaction of the amendment to put processes in place to comply with PACT Act requirements.
The first step in the PACT Act compliance process for vapor products sellers is registration with the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”). This agency administers and enforces PACT Act requirements at the federal level. The second step in the compliance process is registration with the state tobacco tax administrator in each state that a company sells vapor products into.
Once registrations are completed, the heavy lift for interstate vapor product wholesalers and retailers are monthly reporting requirements for each state in which the company is registered and making sales. Although the ATF has a standard form that is adopted to a large degree by most states, there is not complete uniformity in the information that states require on their PACT Act reports. Keeping up with varying report requirements in every US state and getting accurate reports filed by the 10th day of each month has proven problematic for many vapor products sellers.
In addition to these new PACT Act reporting burdens, vapor companies are also now faced with many new excise tax payment and reporting obligations in states across the country. As states continue to search for new revenue sources to fund government operations, extended existing excise taxes to vapor products has become popular with legislators as those products have become more popular with consumers. The excise tax rules, tax bases (how the tax is calculated) and tax rates vary from state to state which makes tax compliance for vapor companies a -compounded challenge on top of the PACT Act reporting requirements. Adding -further complexity, the PACT Act requires that excise taxes be paid to states prior to shipments of products into the state. With these new state PACT Act reporting and excise tax requirements hitting vapor companies all at once, there is a scramble to achieve compliance as penalties, potential fines or loss of a seller’s license looms for those who cannot keep up.
Key compliance highlights for vapor products sellers:
- ENDS sellers must file a statement with the U.S. Attorney General and the tobacco tax administrators of the state into which the shipment is made or advertised.
- No later than the 10th day of each calendar month, sellers of ENDS must file with the state’s tobacco tax administrator a memorandum or a copy of the invoice covering each shipment made during the previous month.
- Before the sale or delivery, sellers must pay any cigarette excise tax by the state or local government.
- Sellers of ENDS must keep a record of any delivery sale for 4 years including tax administration information. Records must be organized by state and be made available to officials to demonstrate compliance.
Cherry Bekaert is one of the few providers to provide an end-to-end, state by state PACT Act registration and reporting, along with excise tax and sales tax filing service. Our State & Local Tax service advisors can help lift the fog with our deep understanding of the requirements for each state, taking the pressure off vaping companies.