State Tobacco Tax
In the United States tobacco products are taxed at both the federal and state level, in addition to any local sales tax and local tobacco-specific tax. The term tobacco means any product that includes tobacco material, this includes cigarettes and Other Tobacco Products (OTP).
Tobacco is regulated by states, so to be able to sell tobacco into a state or within a state you must have a tobacco license. Most states require separate permits for cigarettes and OTP. There are three types of tobacco licenses, wholesale or distributor, manufacturer, and retailer. Wholesale distributor licenses can be classified as instate or out of state. Different types or classes of tobacco permits may be required to file different tax return forms and schedules. Tobacco permits must be renewed annually. Most states charge $50 to $100 for renewal of tobacco licenses. Licensed distributors must file tax returns at the end of each month even if they had no sales. Late tobacco tax returns result in penalties and late fees. Failure to file no activity tax return results in states estimating your tax due with penalties and late fees.
Other Tobacco Products Tax
In the United States Other Tobacco Products (OTP) are taxed at both the federal and state levels, in addition to any local sales tax and local tobacco-specific tax. The term OTP means any product that is not cigarettes and includes tobacco ingredients. OTP includes cigars, smokeless tobacco, wraps, pipe tobacco, and vapor. OTP is taxed on weight, price, cost (wholesale price), or count (sticks or cans).
Smokeless Tobacco
Smokeless tobacco is any tobacco product that consists of cut, ground, powdered, or leaf tobacco and intended to be placed in the oral or nasal. Smokeless tobacco also includes moist snuff, dry snuff, and chewing tobacco.
Smoking Tobacco
Smoking tobacco is any tobacco product inhaled. Smoking tobacco includes cigars, hookah or pipe tobacco, roll you own and little cigars.
Tobacco Accessories
Accessories include e-cigarettes, pipes, lighters, and other accessories.
E-Cigarettes/Vaping Products
Taxable Tobacco Products
The following is a comprehensive list of tobacco products that are taxable by states:
- E-cigarette
- E-hookah
- E-cigar
- Vape pen
- Vaporizer
- Electronic pipe
- E-liquid
- Loose Leaf
- Plug
- Twist Rope
- Spit Free
- CTP
- Wraps
- Chewing Tobacco
- Smokeless Tobacco
- Smoking Tobacco
- Tobacco Accessories
- Smoking Tobacco CBD
- Tubes
- Cigarettes
- Electronic Cigarettes
- Electronic Cigarettes Refill
- Electronic Cigarettes No Refill
- Electronic Cigarettes Cartridge No Refill
- Electronic Liquid
- Electronic Liquid No Nicotine
- Electronic Liquid CBD
- Electronic non-Liquid nicotine
- Cigars
- Little Cigars
- Premium Cigars
- Moist Snuff
- Dry Snuff
- Snus
- Roll Your Own
- Pipe Tobacco
- Water Pipe Tobacco
- Dry Pipe Tobacco
- Accessories
- Cigarette Paper
Tax Electronic Filing
Electronic Filing or EDI is the structured transmission of data between organizations by electronic means, which is used to transfer electronic documents or business data from one system to another system (i.e. from taxpayer invoicing system to the state system without human intervention). Tobacco electronic filing includes portal data entry, online file upload, or other forms of file transfer (SFTP). The file can be of different format like CSV/Excel, XML, or other form of EDI.
XML E-file
XML is a markup language much like HTML that is designed to describe data by using tags. XML is a platform and software independent tool for storing, carrying, and exchanging data. Most states are migrating to XML electronic filing systems. The latest states to adapt XML e-filing, as recommended by the FTA Tobacco Uniformity technical committee, include Kentucky, Oregon, Ohio, and Michigan. The IRS XML electronic filing as defined by Tigers e-standards committee is leading the way for XML technology as the future format for filing taxes in the United States.
Uniform Filing
The FTA Tobacco Tax Section assists in establishing uniform reporting guidelines among the states for exchanging information on the distribution of cigarette and tobacco products. Uniform electronic filing using XML technology is the recommended media for exchanging tax return data between taxpayers and the states.
Tobacco Tax Audit
Audit of the taxpayer’s records is conducted by state field auditor to determine if additional money is owed to the State Department of Revenue.
An audit starts with testing internal controls before proceeding with fieldwork. Randomly select three to six months to use as test months. Evaluate the taxpayer's process of recording purchases or sales and reconcile the amounts to the summary data and to the reports. Analyze the results of any discrepancies. If adjustments are necessary, the auditor decides whether to proceed in detail or to consider a sample and projection.