Owning and operating a California tobacco product retail or wholesale business comes with many different licensing and tax requirements. Alleged violations of these rules can result in both civil and criminal penalties that could hurt your financials and jeopardize future business through a license suspension or revocation. While the California Department of Tax and Fee Administration (CDTFA) has discretion in issuing citations, their decisions are not without recourse.
After receiving a citation, you must decide if you will accept the punishment or appeal it in hopes of a more favorable outcome. We outline the CDTFA’s appeal process below and discuss key issues to consider after receiving a tobacco product tax or licensing citation.
When Does the CDTFA Issue Citations for Tobacco Product Violations?
The CDTFA could issue a citation to your tobacco product business after it receives notice of a violation of the California Cigarette and Tobacco Products Licensing Act of 2003. This may occur after the CDTFA conducts an inspection through its Investigation Division or its Audit Department. Common examples of violations that could lead to a citation may include the following:
- Holding untaxed tobacco products in your inventory.
- Not displaying proper signs and notices in your store.
- Not following ID verification requirements or selling to minors.
- Failing to keep business records available for inspection.
- Late filing of OTP tax returns.
- Nonpayment of tobacco product taxes.
- Failing to renew tobacco retail or distributor licensing.
The CDTFA will send a written notice to the registration address for your license that states the nature of the violation and whether you are receiving a warning or citation. This notice will also state the penalties the CDTFA is imposing.
Reasons a CDTFA Tobacco Product Citation Could Be Appealable
When appealing a California tobacco products tax or licensing decision, you must generally show that the CDTFA acted unreasonably given the facts of the situation, the applicable law, and standard practices of the agency. Citations from CDTFA agents could be appealable when a taxpayer has good cause for disputing the potential penalties. Common issues that could create an appeal opportunity might include:
- Unreasonable demands from the CDTFA to inspect records and inventory or to conduct an audit.
- OTP tax assessments based on poor sampling methods and other assumptions.
- Failing to consider relevant documents and records when issuing citations.
- Disregarding procedural rules when initiating enforcement actions.
- Taking actions that depart from current policy or regulations.
- Failing to initiate proper rulemaking before taking a policy position that affects your license or operations.
The Process for Appealing a California Tobacco Citation
You have a short window of time to appeal a citation from the CDTFA, which should be stated on your citation notice. Generally, you must file an appeal within 30 days from the date of the notice. Failure to follow this timing requirement could create a waiver of your right to appeal the citation, even if the appeal would otherwise be successful. The petition for an appeal should include the reason for disputing the citation and any documents or stated facts necessary to support the appeal.
Notice of Conference
The CDTFA will respond with a Notice of Conference that you must accept within 10 days of receiving. This conference serves as an informal hearing where representatives will consider the appeal and request any additional information needed to make a decision. Later, you will receive another notice informing you of the CDTFA’s decision.
Escalation to the CDTFA Appeals Bureau
An unfavorable decision following the conference can be further appealed to the CDTFA’s Appeals Bureau. You have another 30 days to make this Request for Appeals Conference. This is a telephone conference that will include an attorney from the CDTFA Appeals Bureau and other representatives from the Investigative Division. The Appeals Bureau will send its Notice of Decision within 90 days of the conference.
Take Your Claim to the Office of Tax Appeals
The final administrative appeal option for tobacco tax and licensing citations is through a petition for review before the California Office of Tax Appeals (OTA). The OTA is a state agency that is separate from the CDTFA, which makes it the most impartial of the different appeal groups. Here, three administrative law judges will consider the merits of the appeal with the potential for a hearing to further explain the issue(s) with your citation and the CDTFA’s prior decisions. The decision from the OTA is generally final unless you want to make a further appeal through the California state court system.
The Potential Benefit of Working with a Tobacco Tax and Licensing Professional on a CDTFA Appeal
The appeal processes described above require communication and interactions with state representatives and attorneys well-versed in California’s tobacco tax and licensing rules. This can make it difficult for business owners or their CPAs to succeed in their appeal without additional guidance. A tobacco tax and licensing professional could be beneficial in helping you evaluate the merits of a citation appeal based on your circumstances.
A key consideration in pursuing an appeal is the potential to remove a violation from your license record. A second or third violation for a tobacco product licensee not only results in increased penalties but could cause a suspension or revocation of your license, which would prohibit you from legally selling tobacco products in California.
If you have concerns about a citation notice from the CDTFA concerning your tobacco license, now could be the time to meet with a tobacco regulatory professional and to consider appeal options.