Part 1.
COMPTROLLER OF PUBLIC ACCOUNTS
Chapter 3.
TAX ADMINISTRATION
Subchapter JJ. CIGARETTE AND TOBACCO PRODUCTS REGULATION
34 TAC §3.1205
The Comptroller of Public Accounts adopts new §3.1205,
concerning delivery sales of cigarettes, with changes to the proposed text
as published in the August 13, 2004, issue of the
Texas Register
(29 TexReg 7928).
House Bill 3139, 78th Legislature, 2003, explains the tax responsibilities
of persons who sell cigarettes to customers in Texas by means of the Internet,
telephone, or mail order.
The American Cancer Society (ACS), Texas Division made several suggestions
regarding the proposed new rule. The ACS suggested that subsection (b)(2)
include a requirement that the seller pay and remit sales taxes to the state
within a specified time period from the date cigarettes are sold to a Texas
buyer. The suggested change was made. The ACS also suggested the following
changes: 1) change subsection (b)(7) so that a seller must verify the age
and identity information provided by a customer in a certification statement
against a commercially available database, and not allow a seller to accept
a photocopy or other image of a government-issued identification bearing the
date of birth of the customer as a valid proof of identification; 2) change
subsection (c)(3) so that payment cannot be made by check, and require the
address on a debit or credit card to be the same as the address the purchaser
provided to the Internet seller; and 3) change subsection (d)(2) to restrict
acceptance of delivery to the purchaser or the purchaser's designee, and deliver
only to the purchaser's residence. These suggested changes were not made to
the three subsections because the changes conflict with provisions in Health
and Safety Code, Chapter 161.
This new section is adopted under Tax Code, §111.002 and §111.0022,
which provides the comptroller with the authority to prescribe, adopt, and
enforce rules relating to the administration and enforcement of the provisions
of Tax Code, Title 2, and taxes, fees, or other charges which the comptroller
administers under other law.
The new rule implements Health and Safety Code, Chapter 161, Subchapter
R.
§3.1205.Delivery Sales of 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 cigarettes to a consumer in Texas
in which:
(A)
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 another on-line service; or
(B)
the cigarettes are delivered by mail or another delivery
service.
(C)
A sale of cigarettes not for personal consumption to a
person who is a wholesale dealer or a retail dealer is not a delivery sale.
(D)
A sale of cigarettes is a delivery sale regardless of whether
the seller is located outside or within Texas.
(2)
Delivery service--A person, including the United States
Postal Service (U.S. Post Office), who is engaged in the commercial delivery
of letters, packages, or other containers.
(3)
Shipping container--A container in which cigarettes are
shipped in connection with a delivery sale.
(4)
Shipping document--A bill of lading, airbill, United States
Post Office form, or any other document used to document a delivery.
(5)
Seller--A person, located outside or within Texas, who
offers cigarettes for sale to the public by telephone order, mail order, or
on the Internet.
(b)
Seller requirements. A person who makes a delivery sale
of cigarettes in Texas, must comply with the following requirements.
(1)
Registration. Sellers located outside of Texas, who wish
to make delivery sales to Texas customers must apply for and obtain a cigarette
distributor permit from the comptroller's office before making a delivery
sale in Texas or before shipping cigarettes into Texas in connection with
a delivery sale. Sellers located in Texas, who wish to make delivery sales
to Texas customers must obtain a cigarette retailer permit and a state sales
tax permit from the comptroller's office before making a delivery sale in
Texas.
(2)
Collection and payment of taxes. The comptroller's office
collects cigarette excise tax through the sale of cigarette tax stamps to
permitted distributors. A seller located outside of Texas who has obtained
a distributor permit is required to purchase and pay for tax stamps before
the comptroller's office will ship the stamps to the seller. In addition,
as provided in Tax Code, Chapter 151, a seller engaged in business in Texas
is required to collect and remit to the comptroller's office sales tax on
all cigarette sales made in Texas.
(3)
Stamping requirements. A seller located outside of Texas
must affix a Texas tax stamp to each package of cigarettes that is to be shipped
or delivered to a purchaser in Texas before shipment. A Texas seller can purchase
only stamped packages of cigarettes from distributors and wholesalers.
(4)
Determine customer's age. Using the methods established
in paragraphs (6) and (7) of this subsection, a seller must confirm the age
of the prospective purchaser placing an order for cigarettes to be delivered
by the U. S. Post Office or by a delivery service before the cigarettes can
be mailed or delivered to a purchaser in Texas.
(5)
Disclosure requirements. A seller must send a prospective
purchaser a notice that includes a prominent and clearly legible statement
that:
(A)
state law prohibits cigarette sales to individuals younger
than 18 years of age;
(B)
sales of cigarettes are restricted to individuals who can
provide verifiable proof of age;
(C)
sales of cigarettes are taxable under Texas Tax Code, Chapter
154;
(D)
the excise tax due on the cigarettes has been paid by the
purchase of a tax stamp for each cigarette package; and
(E)
that a tax stamp has been affixed to each cigarette package
sold.
(6)
Written certification. A seller is required to obtain from
the prospective purchaser a written certification that includes:
(A)
a reliable confirmation that the prospective purchaser
is at least 18 years of age;
(B)
a statement signed by the prospective purchaser certifying
the prospective purchaser's address and date of birth;
(C)
a confirmation that the prospective purchaser understands
that signing another person's name to the certification is illegal, that state
law prohibits the sale of cigarettes to, and the purchase of cigarettes by,
an individual younger than 18 years of age; and
(D)
a confirmation that the prospective purchaser wants to
receive mailings from a tobacco company.
(7)
Age verification. A seller must make a good faith effort
to verify the information contained in the certification required under paragraph
(6) of this subsection. A seller may compare the information against a commercially
available database or obtain a photocopy or other image of a government-issued
identification bearing a photograph and date of birth of the prospective purchaser.
(8)
Disclosure notice. A seller must send to the prospective
purchaser, by e-mail or other means, a notice that complies with the requirements
in paragraph (5) of this subsection.
(c)
Purchaser requirements. A person placing an order for cigarettes
to be mailed or delivered must first:
(1)
provide the seller with proof of age;
(2)
provide the seller with a signed written statement that
confirms:
(A)
the purchaser's address and date of birth;
(B)
the purchaser's permission for a tobacco company to send
mailings to the purchaser;
(C)
the purchaser's knowledge that signing another person's
name to the written statement is illegal, and that state law prohibits the
sales of cigarettes to, and the purchase of cigarettes by, an individual younger
than 18 years of age; and
(3)
pay for the cigarettes ordered by mail or over the Internet
by check or by a credit or debit card that has been issued in the purchaser's
name.
(d)
Seller shipping requirements. Anyone who mails, ships,
or delivers cigarettes into Texas in connection with a delivery sale order
must:
(1)
include as part of the shipping documents a clear and conspicuous
statement: "CIGARETTES: TEXAS LAW PROHIBITS SHIPPING TO INDIVIDUALS UNDER
18 YEARS OF AGE AND REQUIRES THE PAYMENT OF ALL APPLICABLE TAXES";
(2)
use a method of mailing or shipping that obligates the
delivery service to require:
(A)
for residential deliveries, the purchaser who placed the
delivery sale order, or an adult who resides at the purchaser's address and
who is at least 18 years of age, to sign to accept delivery of the shipping
container and for the person accepting delivery to provide proof of identity
and age by means of government-issued identification bearing a photograph;
(B)
for non-residential deliveries, the purchaser who placed
the delivery sale order, or a person who is at least 18 years of age, to sign
to accept delivery of the shipping container and to provide proof of identity
and age by means of a government-issued identification bearing a photograph;
(3)
provide the delivery service with a written and signed
statement that a Texas cigarette tax stamp has been affixed to each package
of cigarettes included in the delivery sale. If the seller is located in Texas,
the seller must also include a written and signed statement that the sales
tax due on each package of cigarettes included in the delivery sale will be
remitted to the comptroller's office.
(e)
Seller reporting requirements. On or before the 10th day
of each month, each seller who has made a delivery sale in Texas or shipped
or delivered cigarettes into Texas in connection with a delivery sale during
the previous month must file a
Texas Cigarette Delivery
Sales Report
with the comptroller's office. This report must be completed
and filed online. The report is available on the comptroller's
Window on State Government
Web site at www.window.state.tx.us. The
first report required under this subsection is due February 10, 2004, and
will cover the period of September 1, 2003 through January 31, 2004. A seller
who submits a monthly "Jenkins Act" report required by 15 U.S.C. Section 376,
as amended, to the comptroller's office has complied with the monthly delivery
sales reporting requirement and no further report is required.
(f)
Violations and Penalties. A seller commits an offense if
the seller violates a provision of the Health and Safety Code, Chapter 161,
Subchapter R, or Tax Code, Chapter 154.
(1)
Age violation. Making a delivery sale of cigarettes to
a person younger than 18 years of age is a Class C misdemeanor for the first
offense. A second and any subsequent offense is a Class B misdemeanor.
(2)
Intentional violations. A seller who knowingly violates
a provision of the Health and Safety Code, Chapter 161, Subchapter R, or knowingly
submits a certification in another person's name commits a third degree felony.
(3)
Non-payment of tax. A seller who fails to pay the cigarette
tax or remit the sales tax must pay to the state a civil penalty in an amount
equal to five times the amount of tax due. This penalty is in addition to
penalties imposed under Tax Code, Chapter 154.
(4)
Forfeiture of cigarettes and property. Packages of cigarettes
that a seller sold or attempted to sell in a delivery sale that do not comply
with the Health and Safety Code, Chapter 161, Subchapter R, may be forfeited
to the state and may 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 the Health and Safety Code, Chapter
161, Subchapter R, may also be forfeited to the state.
(5)
Tax code violations. If the comptroller finds that a seller
violates Tax Code, Chapter 154, or a rule made pursuant to Chapter 154, the
comptroller may impose a penalty of not more than $2,000 for each violation
per day and/or suspend or revoke a permit pursuant to Texas Tax Code, §154.1141.
This agency hereby certifies that the adoption has been
reviewed by legal counsel and found to be a valid exercise of the agency's
legal authority.
Filed with the Office of
the Secretary of State on December 21, 2004.
TRD-200407438
Martin Cherry
Chief Deputy General Counsel
Comptroller of Public Accounts
Effective date: January 10, 2005
Proposal publication date: August 13, 2004
For further information, please call: (512) 475-0387
Subchapter C. CLAIMS PROCESSING--TRAVEL VOUCHERS
Chapter 5.
FUNDS MANAGEMENT (FISCAL AFFAIRS)