As today’s global economy continues to grow, many more businesses
are shifting to the online model. Using e-commerce, primarily websites,
businesses can lower overhead costs and reach multiple of customers that
they normally could not reach using the traditional brick and mortar model.
Everyone is familiar with the shift in mainstream products, which has given
rise to online retailers like Amazon and Overstock. However, what if a
tobacco or cigar wholesale wants to sell online. Is a business allowed
to sell online? If they do, is a state allowed to enforce its taxing obligations?
These questions are directed to our company on a regular basis by new
wholesalers or by wholesalers looking to expand to the internet.
Can a Tobacco Wholesaler Use E-Commerce to Sell Products?
Like most areas of tobacco regulation, the answer to the questions posed
above depends on the state. While the online sale of cigarettes are generally
not allowed, most states allow the online sale of other tobacco or cigars
from a website.
Some states, like
not allow the online sale of cigars into their state. Thus, the first step
for a tobacco or cigar wholesale who wishes to sell online is to determine
whether the wholesaler can sell into a particular jurisdiction.
Assuming you or your client’s company can sell online into a particular
jurisdiction only heightens the confusion. Most states require that a
business have a wholesaler and/or a reseller license to even sell tobacco
into their state. This means that you can have nothing in a state and
only make sales, yet you may still likely be required to obtain the requisite
state license(s), pay the appropriate tax, and be subject to state tobacco audits.
This burden is attached purely on a company’s sales into a particular
state. Therefore, you or your client’s company must likely obtain
a license for each and every state into which it sells.
State Licenses for Selling Tobacco Online
While states will require you or your client’s company to obtain
a license to sell into a particular state, it is questionable as to whether
this practice is legal. Under the Constitution, a state cannot force a
company to do anything it its state unless the state has some contact
or connection with that state. For example, a state cannot force a company
to charge, collect, and remit tax to the state unless the company has
some physical presence with the state. Likewise, a company cannot be forced
to defend a lawsuit in a state unless it has some connection with that state.
All of that being said, states still require companies to register in its
state without any connection aside from sales into that state. It seems
that more companies should challenge this position as it may not be constitutional.
This article is limited to preliminary state requirements to sell cigars
or tobacco online into a state. If the company is a manufacturer or importer,
then there are several federal obligations as well.
From a state perspective, the wholesale tobacco or cigar distributor must
determine whether they can sell tobacco online into the state. From there,
it must be determined which license(s) are required to distribute a particular
product into the state. The cigar or tobacco wholesaler will also likely
be required to pay tax on the products it distributes and be subject to
audit and slew of other regulatory issues.
It is easy to see that if you or your client is looking to start a new
wholesale business and/or sell tobacco online, it may be wise to get a
tobacco tax consultant on board. At Tobacco Tax Refund, Inc., we assist
companies with tax, licensing, and other regulatory issues to make sure
they are set up right. We also can look into whether a company has been
paying the correct amount of tax. If not, then we can offer refund services as well.
About the Author
Mr. Donnini is the president and founder of Tobacco Tax Refunds, Inc. He
is also multi-state sales and use tax attorney and an associate in the
law firm Moffa, Gainor, & Sutton, PA, based in Fort Lauderdale, Florida.
Mr. Donnini has extensive knowledge handling wholesale tax controversy
In his law practice Mr. Donnini's primary practice is multi-state sales
and use tax as well as state corporate income tax controversy. Mr. Donnini
also practices in the areas of federal tax controversy, federal estate
planning, Florida probate, and all other state taxes including communication
service tax, cigarette & tobacco tax, motor fuel tax, and Native American
taxation. Mr. Donnini obtained his LL.M. in Taxation at NYU. Mr. Donnini
is licensed to practice law in Florida.
If you have any questions, please do not hesitate to contact him via email
at [email protected] or phone at 954-639-4496