Section 3.121 - Definitions, Imposition of Tax, Permits, and Reports(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 Texas who is a third-party agent of a manufacturer located outside of Texas and who receives tobacco products in interstate commerce and stores the tobacco products for distribution or delivery to distributors under orders from the manufacturer.(2) Cigar--A roll of fermented tobacco that is wrapped in tobacco and that the main stream of smoke from which produces an alkaline reaction to litmus paper.(3) Commercial business location--The entire premises occupied by a permit applicant or a person required to hold a permit under Tax Code, Chapter 155 (Cigar and Tobacco Product Tax). A commercial business location does not include a residence or a unit in a public storage facility.(4) Common carrier--A motor carrier registered under Transportation Code, Chapter 643 (Motor Carrier Registration), or a motor carrier operating under a certificate issued by the Interstate Commerce Commission or its successor agency.(5) Distributor--A person who: (A) receives untaxed tobacco products from a manufacturer for the purpose of making a first sale in Texas;(B) brings or causes to be brought into Texas untaxed tobacco products for sale, use, or consumption;(C) manufacturers or produces tobacco products; or(6) Engage in business--A person engaging either directly or through a representative, in any of the following activities: (A) selling tobacco products in or into this state;(B) using a warehouse or another location to store tobacco products; or(C) otherwise conducting through a physical presence tobacco product-related business in this state.(7) Export warehouse--A person in this state who receives untaxed tobacco products from manufacturers and stores the tobacco products for the purpose of making sales to authorized persons for resale, use, or consumption outside the United States.(8) Factory list price--The published manufacturer gross cost to the distributor. The term is synonymous with manufacturer's list price.(9) First sale--Except as otherwise provided by this section, the term means the first transfer of possession in connection with a purchase, sale, or any exchange for value of tobacco products in or into this state, which includes: (A) the sale of tobacco products by a distributor in or outside this state to a distributor, wholesaler, or retailer in this state; and a manufacturer in this state who transfers the tobacco products in this state; and does not include: (i) the sale of tobacco products by a manufacturer outside this state to a distributor in this state; or(ii) the transfer of tobacco products from a manufacturer outside this state to a bonded agent in this state;(B) the first use or consumption of tobacco products in this state; or(C) the loss of tobacco products in this state whether through negligence, theft, or other loss.(10) Importer--A person who ships, transports, or imports into Texas tobacco products manufactured or produced outside the United States for the purpose of making a first sale in this state.(11) Manufacturer--A person who manufactures, fabricates, or assembles tobacco products, or causes or arranges for the manufacture, fabrication, or assembly of tobacco products, for sale or distribution.(12) Manufacturer's representative--A person who is employed by a manufacturer to sell or distribute the manufacturer's tobacco products.(13) Manufacturer's listed net weight--For the purposes of calculating and reporting the state excise tax due on tobacco products other than cigars, the taxable net weight for a tobacco product is the weight of the finished product as shown or listed by the product manufacturer on the product can, package, shipping container, or the report required by Tax Code, § 155.103(b) (Manufacturer's Records and Reports).(14) Permit holder--A bonded agent, distributor, importer, export warehouse, manufacturer, wholesaler, or retailer who obtains a permit under Tax Code, § 155.041(Permits).(15) Place of business-- (A) a commercial business location where tobacco products are sold;(B) a commercial business location where tobacco products are kept for sale or consumption or otherwise stored and may not be a residence or a unit in a public storage facility;(C) a vehicle from which tobacco products are sold; or(D) a vending machine from which tobacco products are sold.(16) Raw tobacco--Any part of the tobacco plant, including the tobacco leaf or stem, that is harvested from the ground and is not a tobacco product as the term is defined in this section.(17) Retailer--A person who engages in the business vending machine.(18) Tobacco product--A tobacco product is: (B) smoking tobacco, including granulated, plug-cut, crimp-cut, ready-rubbed, and any form of tobacco substitute for smoking in a pipe or as a cigarette;(C) chewing tobacco, including, Cavendish, Twist, plug, scrap, and any kind of tobacco suitable for chewing;(D) snuff or other preparations of pulverized tobacco; or(E) an article or product that is made of tobacco or a tobacco substitute and that is not a cigarette or an e-cigarette as defined by Health and Safety Code, § 161.081 (Definitions).(19) Trade discount, special discount, or deals--Includes promotional incentive discounts, quantity purchase incentive discounts, and timely payment or prepayment discounts.(20) Weight of a cigar--The combined weight of tobacco and nontobacco ingredients that make up the total product in the form available for sale to the consumer, excluding any carton, box, label, or other packaging materials.(21) Wholesaler--A person, including a manufacturer's representative, who sells or distributes tobacco products in this state for resale but who is not a distributor.(b) Imposition of tax. A tax is imposed and becomes due and payable when a permit holder receives cigars or tobacco products for the purpose of making a first sale in this state. (1) Tax Rates. (A) the tax on cigars is calculated at: (i) $.01 per 10 or fraction of 10 on cigars that weigh three pounds or less per thousand;(ii) $7.50 per thousand on cigars that weigh more than three pounds per thousand and that are sold at factory list price, exclusive of any trade discount, special discount, or deal, for 3.3 cents or less each;(iii) $11 per thousand on cigars that weigh more than three pounds per thousand and that are sold at factory list price, exclusive of any trade discount, special discount, or deal, for more than 3.3 cents each, and that contain no substantial amount of nontobacco ingredients; and(iv) $15 per thousand on cigars that weigh more than three pounds per thousand and that are sold at factory list price, exclusive of any trade discount, special discount, or deal, for more than 3.3 cents each, and that contain a substantial amount of nontobacco ingredients.(B) The tax for tobacco products, other than cigars, is based on the manufacturer's listed net weight for an individual product's can or package and a rate for each ounce and proportionate rate on all fractional parts of an ounce of weight for that product. The tax imposed on a can or package of a tobacco product that weighs less than 1.2 ounces is equal to the amount of the tax imposed on a can or package that weighs 1.2 ounces. The rates imposed for state fiscal years 2010, 2011, 2012, 2013, 2014, and thereafter are set forth in this subparagraph. An expanded chart showing rates for cans or packages greater than 1.2 ounces is available at comptroller.texas.gov. (i) The rate for the state Fiscal Year 2010 (September 1, 2009 through August 31, 2010), is $1.10 per ounce plus the proportionate rate on all fractional parts of an ounce.(ii) The rate for the state Fiscal Year 2011 (September 1, 2010 through August 31, 2011), is $1.13 per ounce plus the proportionate rate on all fractional parts of an ounce.(iv) The rate for the state Fiscal Year 2013 (September 1, 2012 through August 31, 2013), is $1.19 per ounce plus the proportionate rate on all fractional parts of an ounce.(v) The rate for state Fiscal Year 2014 (which begins September 1, 2013) and for each fiscal year thereafter, is $1.22 per ounce plus the proportionate rate on all fractional parts of an ounce.(C) The tax imposed on a unit that contains multiple individual cans or packages is the sum of the taxes imposed under paragraph (1)(B) of this subsection, on each individual can or package intended for sale or distribution at retail. For example, on November 1, 2009 (Fiscal Year 2010) a distributor receives from a manufacturer for the purpose of making a first sale in Texas a unit of snuff that consists of 10 individual cans. Each can weighs 1.3 ounces. The effective tax rate for each can is $1.43. The total tax due for the unit is calculated by multiplying the effective tax rate on each individual can ($1.43) by the total number of individual cans in the unit (10 cans), for a total tax due of $14.30.(2) Free goods shall be taxed at the prevailing factory list price, except that each tobacco product other than cigars shall be taxed according to the manufacturer's listed net weight for the product and the applicable fiscal year rate for each ounce and proportionate rate for all fractional parts of an ounce according to paragraph (1)(B) of this subsection.(3) A person who receives or possesses tobacco products on which a tax of more than $50 would be due is presumed to receive or possess the tobacco products for the purpose of making a first sale in this state. This presumption does not apply to common carriers or to manufacturers.(4) A tax is imposed on manufacturers, who manufacture tobacco products in this state, at the time the tobacco products are first transferred in connection with a purchase, sale, or any exchange for value in intrastate commerce.(5) The delivery of tobacco products by a principal to its bonded agent in this state is not a first sale.(6) If a manufacturer sells tobacco products to a purchaser in Texas and ships the products at the purchaser's request to a third party distributor in Texas, then the purchaser has received the tobacco products for first sale in Texas.(7) The person in possession of cigars or tobacco products has the burden to prove payment of the tax.(c) Sales and purchase requirements for permit holders. Except for retail sales to consumers, cigarettes may only be sold or distributed by and between permit holders as provided by this section. A permit holder may engage in the following business activities:(1) A manufacturer outside this state who is not a permitted distributor may sell tobacco products only to a permitted distributor.(2) A permitted distributor may sell tobacco products only to a permitted distributor, wholesaler, or retailer.(3) A permitted importer may sell tobacco products only to a permitted distributor, wholesaler, or retailer.(4) A permitted wholesaler may sell tobacco products only to a permitted distributor, wholesaler, or retailer.(5) A permitted retailer may sell tobacco products only to the consumer and may purchase tobacco products only from a permitted distributor or wholesaler.(6) A permitted export warehouse may sell tobacco products only to persons authorized to sell or consume untaxed tobacco products outside the United States.(7) A manufacturer's representative may sell tobacco products only to a permitted distributor, wholesaler, or retailer.(d) 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.(e) Permits required. To engage in business as a distributor, importer, manufacturer, export warehouse, wholesaler, bonded agent, or retailer a person must apply for and receive the applicable permit from the comptroller. The permits are not transferable. (1) A person who engages in the business of a bonded agent, distributor, importer, manufacturer, export warehouse, wholesaler, or retailer without a valid permit is subject to a penalty of not more than $2,000 for each violation. Each day on which a violation occurs is a separate offense. A new application is required if a change in ownership occurs (sole ownership to partnership, sole ownership to corporation, partnership to limited liability company, etc.). Each legal entity must apply for its own permit(s). All permits issued to a legal entity will have the same taxpayer number.(2) Each distributor, importer, manufacturer, wholesaler, bonded agent, export warehouse, or retailer shall obtain a permit for each place of business owned or operated by the distributor, importer, manufacturer, wholesaler, bonded agent, or retailer. A new permit shall be required for each physical change in the location of the place of business. Correction or change of street listing by a city, state, or U.S. Post Office shall not require a new permit so long as the physical location remains unchanged.(3) Permits are valid for one place of business at the location shown on the permit. If the location houses more than one place of business under common ownership, an additional permit is required for each separate place of business. For example, a retailer must have a separate permit for each vending machine including several machines at one location.(4) A vehicle from which cigars and tobacco products are sold is a place of business and requires a permit. A motor vehicle permit is issued to a bonded agent, retailer, distributor, or wholesaler holding a current permit. Vehicle permits are issued bearing a specific motor vehicle identification number and are valid only when physically carried in the vehicle having the corresponding motor vehicle identification number. Vehicle permits may not be moved from one vehicle to another. Each cigar or tobacco product manufacturer's sales representative is required to purchase a wholesale dealer's permit for each manufacturer's vehicle operated. No cigar and tobacco product permit is required for a vehicle used only to deliver invoiced tobacco products.(5) The comptroller may issue a combination permit for cigarettes, tobacco products, or cigarettes and tobacco products to a person who is a distributor, importer, manufacturer, wholesaler, bonded agent, or retailer as defined by Tax Code, Chapter 154 (Cigarette Tax) and Chapter 155 (Cigars and Tobacco Products Tax). A person who receives a combination permit pays only the higher of the two permit fees.(6) The comptroller will not issue permits for a residence or a unit in a public storage facility because tobacco products cannot be stored at such places.(f) Permit Period. (1) Bonded agent, distributor, export warehouse, importer, manufacturer, wholesaler, and motor vehicle permits expire on the last day of February of each year.(2) Retailer permits expire on the last day of May of each even-numbered year.(g) Permit Fees. An application for a bonded agent, distributor, manufacturer, wholesaler, motor vehicle, or retailer permit must be accompanied by the required fee.(1) The permit fee for a bonded agent is $300.(2) The permit fee for a distributor is $300.(3) The permit fee for a manufacturer with representation in Texas is $300.(4) The permit fee for a wholesaler is $200.(5) The permit fee for a motor vehicle is $15.(6) The permit fee for a retailer permit issued or renewed is $180. Retailers who fail to obtain or renew a retailer permit in a timely manner are liable for the fee in effect for the applicable permit period, in addition to the fee described in paragraph (8) of this subsection.(7) No permit fee is required to obtain an importer permit, export warehouse, or to register a manufacturer when the manufacturer is located out of state with no representation in Texas.(8) A $50 fee is assessed for failure to obtain or renew a permit in a timely manner.(9) The comptroller prorates the permit fee for new permits according to the number of months remaining in the permit period. If a permit will expire within three months of the date of issuance, the comptroller may collect the prorated permit fee for the current permit period and the total permit fee for the next permit period.(10) A person issued a permit for a place of business that permanently closes before the permit expiration date is not entitled to a refund of the permit fee.(h) Permit issuance, denial, suspension, or revocation. (1) The comptroller shall issue a permit to a distributor, importer, manufacturer, export warehouse, wholesaler, bonded agent, or retailer if the comptroller has received an application and any applicable fee, the applicant has complied with Tax Code, § 155.041, and the comptroller determines that the issuance of such permit will not jeopardize the administration and enforcement of Tax Code, Chapter 155.(2) If the comptroller determines that an existing permit should be suspended or revoked or a permit should be denied, after notice and opportunity for hearing, because the applicant has failed to disclose any information required by Tax Code, § 155.041(d), (e), and (f), including the applicant's prior conviction of a crime and the relationship of the crime to the license, the comptroller will notify the applicant or permittee in writing by personal service or by mail of the reasons for the denial, suspension, revocation, or disqualification, the review procedure provided by Occupations Code, § 53.052 (Judicial Review), and the earliest date that the permit holder or applicant may appeal the denial, suspension, revocation, or disqualification.(i) Sale and delivery of tax-free cigars and tobacco products to the United States government. (1) Distributors may use their own vehicles to deliver previously invoiced quantities of tax-free cigars and tobacco products to instrumentalities of the United States government. These tax-free products must be packaged in a manner in which they will not commingle with any other cigars or tobacco products.(2) Each sale of tax-free cigars and tobacco products by a distributor to an instrumentality of the United States government shall be supported by a separate sales invoice and a properly completed Texas Certificate of Tax Exempt Sale, Form 69-302. Sales invoices must be numbered and dated and must show the name of the seller, name of the purchaser, and the destination.(j) Reports. (1) Manufacturer reports must be filed on or before the 25th day of each month for transactions that occurred during the preceding month.(2) All tobacco distributor and wholesaler reports and payments must be filed on or before the 25th day of each month for transactions that occurred during the preceding month.(3) All wholesaler and distributor reports of sales to retailers required by the comptroller under Tax Code, § 155.105 (Reports by Wholesalers and Distributors of Cigars and Tobacco Products), shall be filed in accordance with § 3.9 of this title (relating to Electronic Filing of Returns and Reports; Electronic Transfer of Certain Payments by Certain Taxpayers).34 Tex. Admin. Code § 3.121
The provisions of this §3.121 adopted to be effective June 5, 2003, 28 TexReg 4309; amended to be effective February 18, 2007, 32 TexReg 537; amended to be effective December 2, 2007, 32 TexReg 8520; amended to be effective March 29, 2010, 35 TexReg 2605; Amended by Texas Register, Volume 43, Number 37, September 14, 2018, TexReg 5986, eff. 9/19/2018; Amended by Texas Register, Volume 45, Number 11, March 13, 2020, TexReg 1859, eff. 3/16/2020