SECTION 3.101. Cigarette Tax and Stamping Activities

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Bonded agent--A person in this state who is a third-party agent of a manufacturer outside this state and who receives cigarettes in interstate commerce and stores the cigarettes for distribution or delivery to distributors under orders from the manufacturer.

(2) Cigar--A roll of fermented tobacco that is wrapped in tobacco and the main stream of smoke from which produces an alkaline reaction to litmus paper.

(3) Cigarette--A roll for smoking:

(A) that is made of tobacco or tobacco mixed with another ingredient and wrapped or covered with a material other than tobacco; and

(B) that is not a cigar.

(4) Distributor--A person who:

(A) is authorized to purchase for the purpose of making a first sale in this state, cigarettes in unstamped packages from manufacturers who distribute cigarettes in this state and to stamp cigarette packages;

(B) ships, transports, imports into this state, acquires, or possesses cigarettes and makes a first sale of the cigarettes in this state;

(C) manufactures or produces cigarettes; or

(D) is an importer.

(5) Export warehouse--A person in this state who receives cigarettes in unstamped packages from manufacturers and stores the cigarettes for the purpose of making sales to authorized persons for resale, use, or consumption outside the United States.

(6) First sale--Except as otherwise provided in this section;

(A) the first transfer of possession in connection with a purchase, sale, or any exchange for value of cigarettes in or into this state, which:

(i) includes the sale of cigarettes by:

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

(II) a manufacturer in this state who transfers the cigarettes in this state; and

(ii) does not include;

(I) the sale of cigarettes by a manufacturer outside this state to a distributor in this state;

(II) the transfer of cigarettes from a manufacturer outside this state to a bonded agent in this state;

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

(IV) the transfer of cigarettes by an interstate warehouse in an interstate warehouse transaction;

(B) the first use or consumption of cigarettes in this state; or

(C) the loss of cigarettes in this state whether through negligence, theft, or other unaccountable loss.

(7) Individual package of cigarettes--A package that contains at least 20 cigarettes.

(8) Interstate warehouse--A person in this state who receives unstamped cigarettes from a manufacturer, bonded agent, distributor, or importer and stores the cigarettes exclusively for an interstate warehouse transaction.

(9) Interstate warehouse transaction--The sale or delivery of cigarettes from an interstate warehouse to a person located in another state who is licensed or permitted by the other state to affix that state's cigarette stamps or otherwise pay the state's excise tax on cigarettes as required.

(10) Manufacturer--A person who manufactures, fabricates, or assembles cigarettes, or causes or arranges for the manufacture, fabrication, or assembly of cigarettes, for sale or distribution.

(11) Retailer--A person who engages in the business of selling cigarettes to consumers and includes the owner of a cigarette vending machine.

(12) Stamp--Includes only a stamp that:

(A) is printed, manufactured, or made by authority of the comptroller;

(B) shows payment of the tax imposed by this chapter;

(C) is consecutively numbered and uniquely identifiable as a Texas tax stamp; and

(D) is not damaged beyond recognition as a valid Texas tax stamp.

(13) Wholesaler--A person, including a manufacturer's representative, who sells or distributes cigarettes in this state for resale but who is not a distributor or interstate warehouse.

(b) Imposition of tax.

(1) A tax is imposed on a person who uses or disposes of cigarettes in this state. The tax rate is $70.50 per thousand on cigarettes weighing three pounds or less per thousand plus $2.10 per thousand on cigarettes weighing more than three pounds per thousand. The tax becomes due and payable when a person receives cigarettes to make a first sale. A person who pays the tax shall securely affix a stamp to each individual package of cigarettes to show payment of the tax. The ultimate consumer or user of cigarettes in this state bears the impact of the tax; and, if another person pays the tax, the amount of the tax is added to the price to the ultimate consumer or user. Absence of a stamp on an individual package of cigarettes is notice that the tax has not been paid.

(2) Cigarettes are exempt from the imposition of tax and the stamping requirements described in this section if the cigarettes are:

(A) contained in a package labeled with "Experimental Use Only," "Reference Cigarettes," or other similar wording indicating that the manufacturer intends for the product to be used exclusively for experimental purposes in compliance with Experimental Purposes, 27 C.F.R. §40.232 (2002);

(B) sold directly by a manufacturer to a research facility in this state, including:

(i) a laboratory, hospital, medical center, college, or university; or

(ii) a facility designated as a Tobacco Center of Regulatory Science by the National Institutes of Health;

(C) used by the research facility exclusively for experimental purposes; and

(D) not resold by the research facility.

(c) Liability of a permitted distributor. A permitted distributor who makes a first sale to a permitted distributor in this state is liable for and shall pay the tax.

(d) Cigarette tax stamp meters. Cigarette distributors cannot use stamp metering machines as evidence of payment of the cigarette tax.

(e) Cigarette tax stamp credits.

(1) Allowance of credit for cigarette tax stamps. The comptroller may authorize credit for:

(A) stamps that are affixed to cigarette packages that have been damaged or are unfit for sale and have been returned to the manufacturer in accordance with Tax Code, §154.306 (Exchange of Stamps);

(B) stamps that have been destroyed by vandalism, fire, flood, or other natural disasters. The distributor must present evidence that such stamps were purchased by the distributor and were subsequently destroyed by such natural disaster;

(C) stamps that have been erroneously affixed to cigarette carton flaps rather than the cigarette packages. The distributor must submit the stamped carton flaps to the comptroller in order to obtain credit. The comptroller will issue an authorization for refund of the tax with disallowance of the stamping discount;

(D) stamps used to restamp cigarette packages provided that the original tax stamps were of an illegible quality and the restamping is required by the comptroller's office. There is no stamping allowance for restamped cigarettes; or

(E) stamps that have been torn or otherwise damaged by a stamping machine. The distributor must submit the damaged stamps to the comptroller in order to obtain credit. The comptroller will notify the distributor of the amount of stamp credit authorized.

(2) Disallowance of credit for cigarette tax stamps. The comptroller will not authorize credit for stamps lost due to theft, negligence, or any unaccountable loss or for stamps that have been affixed two or more times to the same package of cigarettes resulting in double stamping.

(f) Cigarette tax stamp payments. All persons who purchase cigarette tax stamps from the comptroller shall transfer payments by electronic funds transfer.

(g) Evidence of return of cigarettes unfit for use. A distributor who requests replacement of cigarette tax stamps affixed to cigarettes that have been returned to the manufacturer must submit the following documentation to the comptroller:

(1) a credit memorandum from the manufacturer to whom the cigarettes were returned, verifying the number of cigarettes returned for credit;

(2) an affidavit from the manufacturer confirming that the tax stamps affixed to the cigarettes listed in the memorandum have been destroyed and listing the number, denomination, and the value of such stamps; and

(3) an affidavit from the distributor stating that the distributor returned the number of cigarettes listed in the manufacturer's credit memorandum and that the number, denomination, and the value of state cigarette tax stamps shown in the manufacturer's affidavit were affixed to the cigarettes returned.

(h) Delivery of unstamped cigarettes to instrumentalities of the United States government.

(1) Distributors may use their own vehicles to deliver previously invoiced quantities of unstamped cigarettes to instrumentalities of the United States government. These tax-free cigarettes must be packaged in a manner that prevents the unstamped cigarettes from commingling with any other cigarettes in the distributor's vehicle.

(2) Each sale of unstamped cigarettes by a distributor to an instrumentality of the United States government shall be supported by a separate sales invoice and a properly completed federal exemption certificate. Sales invoices must be numbered and dated and must show the name of the seller, name of the purchaser, and the destination.

(i) Generation and affixing of cigarette tax stamps by the Texas Alcoholic Beverage Commission (TABC).

(1) The comptroller, by interagency cooperation contract, may authorize the TABC to generate a cigarette tax stamp using the TABC's Port of Entry Tax Collection System and to affix the cigarette tax stamp to cigarette packages for the purpose of collecting the cigarette tax at ports of entry into the state.

(2) The TABC imposes a rate of readtac$ext.TacPage?sl=T&app=9&p_dir=F&p_rloc=210423&p_tloc=9926&p_ploc=1&pg=2&p_tac=&ti=34&pt=1&ch=3&rl=101.50 per pack for a conventional package of 20 cigarettes.

(3) Payment for the cigarette tax stamps sold will be made by that agency according to the terms and conditions stipulated in the interagency cooperation contract between the comptroller and the TABC.

(j) Affixing of cigarette tax stamps by TABC agents. Cigarette tax stamps affixed by agents of the TABC must be affixed to the cellophane wrapper on the bottom of each individual package of cigarettes.

(k) Disposition of cigarettes seized by TABC agents.

(1) TABC agents shall seize all cigarettes for which the holder refuses to pay the tax imposed by Tax Code, §154.021 (Imposition and Rate of Tax).

(2) Cigarettes seized shall be released to agents of the comptroller for ultimate disposition.

(l) Importation of cigarettes for personal use.

(1) Only a person 21 years of age or older, a person who is at least 18 and in the United States military or State military forces, or a person who was born on or before August 31, 2001, may import and personally transport cigarettes into this state.

(2) A person who imports and personally transports 200 or fewer cigarettes into this state from another state or an Indian reservation under the jurisdiction of the U.S. government, for personal use and not for sale, is not required to pay the tax imposed by Tax Code, §154.021.

(3) TABC employees shall collect the tax imposed by Tax Code, §154.021, at ports of entry from each person who imports and personally transports more than 200 cigarettes into this state from another country.

(4) TABC employees shall seize at ports of entry all cigarettes in the possession of a person younger than 21 years of age, unless the person is at least 18 and in the United States military or State military forces, or was born on or before August 31, 2001.

Source Note: The provisions of this §3.101 adopted to be effective June 5, 2003, 28 TexReg 4308; amended to be effective February 18, 2007, 32 TexReg 536; amended to be effective August 25, 2009, 34 TexReg 5749; amended to be effective March 20, 2018, 43 TexReg 1639; amended to be effective April 20, 2020, 45 TexReg 2565; amended to be effective October 23, 2022, 47 TexReg 6887