Virginia Enacts Tobacco Products Tax Law Applicable to Remote Retail Sales of Cigars and Pipe Tobacco

Troutman Pepper

New Virginia law addresses excise taxation and other requirements regarding remote retail sales of cigars and pipe tobacco to consumers in the Commonwealth.

On April 27, 2022, the Virginia General Assembly passed House Bill 1199 and Senate Bill 748 regarding the application of the Commonwealth’s tobacco products tax on “remote retail sales” of cigars and pipe tobacco and related requirements.

The General Assembly had earlier passed the bills; however, on April 11 the Governor recommended several changes.  The General Assembly accepted the Governor’s recommendations in full on April 27, making the bills law pursuant to Article V, § 6(b)(iii) of the Virginia Constitution.  The laws will take effect on July 1, 2022.

Regarding imposition of the tobacco products tax, the law does not change current tax rates, but provides that:

  • for “cigars and pipe tobacco products sold by remote retail sellers,” the tobacco products tax rates apply to either (a) “[t]he actual cost;” or (b) “[i]f the actual cost is not available, the average of the actual cost over the 12 calendar months before January 1 of the year in which the sale occurs;”
  • “‘actual cost’ means the actual price paid by a remote retail seller for each individual stock keeping unit or SKU;”
  • the tax will be imposed once, “at the time the remote retail seller located within or outside the Commonwealth makes a remote retail sale to a consumer within the Commonwealth,” and “the remote retail seller [will] be liable for the tax.”

To lawfully make remote retail sales of cigars or pipe tobacco to consumers in the Commonwealth, the law requires that the remote retail seller:

  • “complet[e] an application for and be[] granted a license as a remote retail seller;”
  • “determin[e] whether economic nexus activity thresholds have been met to register for a dealer’s certificate under” the Retail Sales and Use Tax law as described in 58.1-612(C), which require dealer registration if the dealer:
  • “1. Maintains or has within this Commonwealth, directly or through an agent or subsidiary, an office, warehouse, or place of business of any nature;
  • Solicits business in this Commonwealth by employees, independent contractors, agents or other representatives;
  • Advertises in newspapers or other periodicals printed and published within this Commonwealth, on billboards or posters located in this Commonwealth, or through materials distributed in this Commonwealth by means other than the United States mail;
  • Makes regular deliveries of tangible personal property within this Commonwealth by means other than common carrier. A person shall be deemed to be making regular deliveries hereunder if vehicles other than those operated by a common carrier enter this Commonwealth more than 12 times during a calendar year to deliver goods sold by him;
  • Solicits business in this Commonwealth on a continuous, regular, seasonal, or systematic basis by means of advertising that is broadcast or relayed from a transmitter within this Commonwealth or distributed from a location within this Commonwealth;
  • Solicits business in this Commonwealth by mail, if the solicitations are continuous, regular, seasonal, or systematic and if the dealer benefits from any banking, financing, debt collection, or marketing activities occurring in this Commonwealth or benefits from the location in this Commonwealth of authorized installation, servicing, or repair facilities;
  • Is owned or controlled by the same interests which own or control a business located within this Commonwealth;
  • Has a franchisee or licensee operating under the same trade name in this Commonwealth if the franchisee or licensee is required to obtain a certificate of registration under § 58.1-613;
  • Owns tangible personal property that is for sale located in this Commonwealth, or that is rented or leased to a consumer in this Commonwealth, or offers tangible personal property, on approval, to consumers in this Commonwealth;
  • Receives more than $100,000 in gross revenue, or other minimum amount as may be required by federal law, from retail sales in the Commonwealth in the previous or current calendar year, provided that in determining the amount of a dealer’s gross revenues, the sales made by all commonly controlled persons as defined in subsection D shall be aggregated; or
  • Engages in 200 or more separate retail sales transactions, or other minimum amount as may be required by federal law, in the Commonwealth in the previous or current calendar year, provided that in determining the total number of a dealer’s retail sales transactions, the sales made by all commonly controlled persons as defined in subsection D shall be aggregated.”
  • “provid[e] for age verification through an independent, third-party age verification service that compares information available from a commercially available database, or aggregate of databases, that is regularly used by government agencies and businesses for the purpose of age and identity verification to the personal information entered by the individual during the ordering process that establishes that the individual is of age;” and
  • “if economic nexus thresholds are met”:
  • “collect[] and remit[] the excise tax pursuant to subsection A of § 1-1021.02;” and
  • if “excise tax is being remitted using the actual cost list method to calculate the excise tax, provid[e] the remote retail seller’s certified actual cost list to the Department [of Taxation] for each SKU to be offered for remote retail sale in the subsequent calendar year. The actual cost list shall be updated quarterly as new SKUs are added to a remote retail seller’s inventory.  New SKUs will be added using the actual cost first paid for the SKU.”

The law also adds relevant statutory definitions of “cigar,” “consumer,” “pipe tobacco,” “remote retail sale,” “remote retail seller,” and “SKU;” imposes recordkeeping and reporting requirements for remote retail sellers; and extends existing requirements related to the tobacco products tax to remote retail sellers. There are also additional requirements if the remote retail seller cannot produce required invoice information and uses the actual cost list method to calculate excise taxes.

The law further provides that the tobacco products tax is otherwise imposed “on tobacco products (i) at the time of retail sale by a retail dealer or distributor; (ii) at the time the distributor makes, manufactures, or fabricates tobacco products in the Commonwealth for sale in the Commonwealth; or (iii) at the time the distributor ships or transports tobacco products to retailers in the Commonwealth to be sold by those retailers.”  (New language emphasized.)

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As previously reported on this blog, the General Assembly extended the Commonwealth’s tobacco products tax to remote sellers beginning January 1, 2021, through revisions to the budget bill.  The new legislation reflects that the taxation and regulation of remote sellers continues to be an area of interest for the General Assembly.  In recent years, this has also been an area of interest to other States’ legislatures (in enacting or amending their own delivery sales laws) and to Congress (in extending the Jenkins Act to electronic nicotine delivery systems).  Whether and how Congress and State legislatures continue to enact or amend laws regarding delivery sales of tobacco products will, of course, continue to be significant matters for delivery sellers to follow.

We will monitor for further developments.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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