The Prevent All Cigarette Trafficking (PACT) Act, 15 U.S.C. § 375 et seq., is a federal law with two primary objectives: (1) to prevent federal and state tax evasion on tobacco products, and (2) to prevent sales of tobacco products to minors. Government agencies, increasingly concerned about cheap, untaxed products getting into the hands of underage consumers, are using the PACT Act’s enforcement tools to crack down on noncompliant companies.

If you are involved in the online sale and/or shipping of tobacco products, here are five things you need to know about the PACT Act.

(1) What products are covered?

The PACT Act covers cigarettes, roll-your-own tobacco, cigarette and cigar wrappers, ENDS and ENDS components (whether used with nicotine or other substances like cannabis derivatives), and smokeless tobacco. These categories of products come with specific definitions in the PACT Act that sometimes can be confusing, therefore it’s important to have a good understanding of their scope. For example, our team is aware that the Bureau of Alcohol, Tobacco and Firearms (ATF), which is charged with enforcement of the PACT Act at the federal level, is actively enforcing the PACT Act and has recently begun taking the position that filtered little cigars could fall within the definition of “cigarette.”

(2) Who is covered?

The PACT Act covers three categories of persons:

Interstate sellers and shippers. The PACT Act covers any person who sells, transfers, or ships for profit cigarettes, roll-your-own tobacco, ENDS, or smokeless tobacco in interstate commerce, whereby such products are shipped into a state, locality, or Native American territory taxing the sale or use of such products, or who advertises or offers such products for such sale, transfer, or shipment. In other words, if you are in the business of selling or shipping covered products into a jurisdiction that taxes the products, you may be subject to the PACT Act.

Delivery sellers. The PACT Act covers “delivery sellers,” which refers to persons who make a delivery sale, or a remote sale of covered products to a consumer. Note that the term “consumer” is defined in such a way that it can include businesses that are not “lawfully operating.” Accordingly, any business that makes remote sales of covered products should conduct due diligence on its customers to ensure they are operating lawfully.

Common carriers and delivery services. The PACT Act covers common carriers and other delivery services in the context of delivery sales, such as DHL, UPS, and FedEx.

(3) What are the PACT Act’s registration and reporting requirements?

Registration. Covered persons must register with ATF, as well as the tobacco tax administrators of the state and place into which the relevant shipment, advertisement, or offer of covered products is made. Note that some states also require registration with the state attorney general’s (AG) office, and, although it is not expressly contemplated in the PACT Act, some states take the position that you need a tobacco license in order to submit PACT Act reports.

Reporting. Covered persons must file monthly PACT Act reports to both the tobacco tax administrators and chief law enforcement officers of each state. Note that the specific forms used by each state vary. Some use standardized forms prepared by the Federation of Tax Administrators, others use their own forms, and others incorporate the PACT Act reporting requirements into other tax reporting forms.

(4) How does the PACT Act impact shipping and delivery sales of covered products?

Nonmailability. Cigarettes, roll-your-own tobacco, smokeless tobacco, and ENDS are nonmailable through the U.S. Postal Service (USPS), unless an exception applies. In general, the discrete statutory exceptions to the nonmailability rule cover cigars, noncontiguous states (Hawaii and Alaska); business/regulatory purposes; certain individuals (aka, noncommercial purposes); consumer testing; and public health.

Delivery sale requirements. The PACT Act imposes several requirements on delivery sales.

First, under the PACT Act, all state, local, tribal, and other laws applicable to covered products will apply to a delivery seller and a delivery sale as if the delivery sale occurred entirely in the jurisdiction where delivery took place. This means that state laws, such as licensing requirements, may apply to out-of-state companies to which they might not otherwise be applicable.

Second, there are special labeling requirements. The bill of lading and shipping package must bear the statement, “CIGARETTES/NICOTINE/SMOKELESS TOBACCO: FEDERAL LAW REQUIRES THE PAYMENT OF ALL APPLICABLE EXCISE TAXES, AND COMPLIANCE WITH APPLICABLE LICENSING AND TAX-STAMPING OBLIGATIONS.”

Third, shipments are subject to a weight restriction of no more than 10 pounds per delivery.

Fourth, there are specific age verification requirements. The adult purchaser who placed the order must sign upon delivery and show government ID. In addition, the order cannot be initiated unless the seller obtains the purchaser’s full name, date of birth, and residential address, and verifies this information in a commercially available database consisting primarily of data from government sources.

Fifth, records of delivery sales must be kept for four years.

Lastly, any state or local excise taxes must be paid prior to delivery.

(5) What are the penalties for noncompliance?

For knowing violations of the PACT Act, violators can be subject to criminal penalties of up to three years imprisonment, or criminal fines, or both, as well as injunctive relief to restrain violations.

For delivery sellers, including those who sell to businesses that are not “lawfully operating,” such violators can be subject to civil penalties of the greater of: $5,000 for the first violation and $10,000 for any other violation; or, for any violation, 2% of the gross sales of covered products of the delivery seller during the one-year period ending on the date of the violation.

In addition to the federal government, state AGs, local government, or Native American tribes who levy an excise tax on covered products, and TTB-permitted tobacco manufacturers, importers, and export warehouse proprietors can also seek injunctive relief and civil penalties for violations.

ATF can also place noncompliant persons on the PACT Act Noncompliant List, which is distributed to the AGs and tax administrators of each state, as well as common carriers and other delivery services, including USPS.

Best Practices

Understanding the PACT Act is critical for anyone involved in the sale or shipment of tobacco products. Noncompliance can result in serious legal and financial consequences, including criminal penalties. Therefore, it is essential to ensure your business practices align with the requirements of the PACT Act. Here are some best practices:

• Designate personnel to oversee compliance with key PACT Act processes.
• Register and report where required.
• Calendar recurring monthly reporting deadlines, including reminders.
• Consider conducting an internal audit to see if you comply.
• If you conduct delivery sales, ensure you comply with all delivery sale requirements and ensure that your business customers are “lawfully operating” through due diligence.
• Maintain proof of compliance, including copies of as-submitted registration and reporting forms, invoices, bills of lading, and, if applicable, business customer licenses.

Please note that this blog post is intended to provide a general overview of the PACT Act and does not constitute legal advice. For specific questions or concerns about the PACT Act and how it may impact your business, please consult with a legal professional.