The letter from the Texas Comptroller arrived on a Tuesday. The number on it was $340,000 in back taxes, penalties, and interest on nicotine pouches a wholesale distributor had been selling in Texas for two years. The pouches did not contain tobacco leaf. The primary ingredient was microcrystalline cellulose, a plant-based filler. The distributor’s position was simple: no tobacco, no tobacco tax. They paid under protest and filed for a refund.
On May 8, 2026, the Texas Supreme Court answered the question those companies had been waiting on for years. The ruling in Hancock v. RJR Vapor Co., LLC, No. 24-0052, is specific, technical, and consequential. The court drew a precise line around what qualifies as a “tobacco substitute” under Texas law. Whether your product falls on the taxable side of that line, or the refund side, depends on how your product was made, not just what it contains.
The first number on that Comptroller letter is not the final number. But whether you can change it depends on what you do before the next court ruling lands.
What the Texas Supreme Court Actually Decided
The Specific Product and the Specific Question
The Hancock case involved RJR’s VELO nicotine pouches. VELO pouches are small oral pouches placed between the cheek and gum. Their primary ingredient is microcrystalline cellulose, a plant-based material that is not tobacco leaf. They also contain nicotine isolate, which is 99% pure nicotine chemically extracted from tobacco plants, along with flavorings and preservatives.
RJR sought a general information letter from the Comptroller before entering the Texas market. The Comptroller said the pouches were taxable. RJR paid under protest and filed for a refund and declaratory judgment. The trial court ruled for RJR on the statutory question and then struck the tax statute as unconstitutional. The Austin Court of Appeals affirmed the not-taxable conclusion without reaching the constitutional issue. The Texas Supreme Court reversed.
The Test the Court Applied
The majority, written by Justice Busby, held that VELO pouches qualify as a “tobacco product” under Tex. Tax Code § 155.001(15)(E) because they are “made of a tobacco substitute.” The court’s reasoning is the part that matters for every company in this space.
The court rejected both parties’ proposed readings. The Comptroller argued that nicotine alone makes something a tobacco substitute. The court said no. RJR argued the term should track a strict industry definition. The court said no to that, too. The majority drew its own line: a tobacco substitute is something that substitutes for tobacco as used in the traditional tobacco products expressly listed in the statute, products like snuff and snus analogs. If your product’s composition functions as a one-for-one replacement for tobacco plant matter in that category of traditional product, it is taxable. If it does not, the analysis is different.
That distinction is narrow. It is also consequential. The court did not hold that all nicotine products are taxable. It held that this specific product, with this specific composition, crossed the line. That leaves real space on the other side.
The Refund Window the Ruling Opened
Here is what most companies in this space missed in the coverage of Hancock: the Texas Supreme Court did not close the book. It reversed on the statutory question and remanded the constitutional challenge under Tex. Const. art. VIII, § 1(a) back to the Court of Appeals. That clause requires taxes to be equal and uniform across the same class of subjects. The argument, that taxing cellulose-based nicotine pouches but not other similar nicotine delivery products creates an unconstitutional classification, has not been adjudicated on the merits.
Justice Sullivan wrote separately, concurring in the outcome but expressing doubt about whether plant matter composition is the right dividing line. That reservation in a concurrence signals that the court’s statutory answer may not be the final word on how Texas treats these products.
An assessment is a position. Not a verdict. This one still has a chapter left.
The Three Types of Companies That Have a Real Claim
Type 1: Companies That Paid Under Protest
When the Hancock case was working its way through the courts, some companies paid the Texas tobacco tax on nicotine pouches under protest. That is the mechanism Texas law provides for preserving a refund claim while complying with the obligation. If your company did that, the Comptroller is holding your money, and the constitutional chapter of Hancock is not over.
I have represented companies that held protest payments for years while constitutional challenges worked through the appellate system. The ones who preserved their rights, who followed the process, maintained their documentation, and did not quietly let the claim lapse, were the ones with options when the final ruling came down. The window to protect that position is before the next ruling, not after.
If your company paid Texas tobacco tax on nicotine pouches under protest, contact Tobacco Tax Refund to evaluate your claim before the constitutional chapter closes.
Type 2: Companies With Products That Don’t Match the VELO Profile
The Hancock holding is product-specific. The majority opinion turned on the specific composition and function of VELO pouches: microcrystalline cellulose plus nicotine isolate, working together as a functional replacement for tobacco plant matter. That is the test. Not every nicotine pouch on the market is a VELO.
If your product’s composition differs, if the plant matter component does not function as a tobacco substitute in the way the court described, or if your product’s ingredients and delivery mechanism place it in a different category, you may have a misapplication argument. The Texas Comptroller assessed first. The burden is on you to challenge it. But a challenge built on the Hancock reasoning is a challenge grounded in what the Texas Supreme Court actually said, not a general dispute about whether nicotine is tobacco.
Simply put: the court drew a specific line. Where your product falls relative to that line is the question that determines your exposure and your opportunity.
Type 3: Companies That Were Not Paying the Tax at All
The Hancock ruling makes clear that VELO-style pouches are taxable under Tex. Tax Code § 155.0211(a), and the Comptroller assessed RJR before the case was ever filed. If your product falls within the ruling’s scope and you have not been paying or holding a permit under Chapter 155, you face back-tax exposure plus penalties and interest under Tex. Tax Code § 155.185.
That is not a refund scenario. That is a voluntary disclosure and mitigation conversation, and the window to get ahead of it does not stay open indefinitely. The companies that address compliance exposure before the Comptroller identifies it consistently reach better outcomes than the ones who are found.
What the Texas Refund Process Actually Requires
If you have a viable claim, here is what it takes to file it.
The Documentation You Need Before You File
The Texas Comptroller requires specific documentation for a tobacco tax refund:
- Form 69-135 (Texas Distributor Report of Interstate Sales of Cigars and Tobacco Products)
- Form 69-136 (Texas Distributor Receiving Record)
- Form 69-315 (Texas Certificate of Tax Exempt Sale)
- A signed letter stating the reason, the tax period, and the amount claimed
- Copies of invoices for the relevant period
- Form 01-137 (Power of Attorney, if represented by an agent)
The claim goes to: Texas Comptroller of Public Accounts, 111 E. 17th Street, Austin, TX 78774-0100. The refund information line is 800-531-5441, ext. 3-3731. One practical point: any other Texas tax liabilities must be cleared before the Comptroller will process your refund. Know your full Texas tax posture before you file.
I have seen companies with legitimate refund claims lose them because the paperwork was wrong, the documentation was incomplete, or the claim was filed without understanding how the Comptroller processes them. The law creates the opportunity. The procedure is what closes it.
The Rate and the Math
The Texas tobacco products tax runs $1.22 per ounce under Tex. Tax Code § 155.0211(b), with a proportionate rate on fractional parts of an ounce. A distributor moving 10,000 ounces per month faces $12,200 in monthly tax liability on nicotine pouches alone. Over a contested 18-month period, that is over $200,000. Add penalties and interest under § 155.185, and the number grows.
That math is why the documentation and timing matter. A refund claim that is incomplete or stale does not recover any of it.
The Refund / Exposure Diagnostic
Before you decide whether you have a claim or an exposure problem, work through this framework:
Question | If Yes | If No |
Did you pay Texas tobacco tax on nicotine pouches? | Potential refund or challenge | Potential unlicensed exposure |
Did you pay under protest? | Constitutional claim still alive | Statutory refund only |
Does your product match the VELO profile (cellulose + nicotine isolate)? | Hancock statutory holding applies | Misapplication argument exists |
Is the constitutional challenge still pending? | Yes (remanded to Court of Appeals) | Wait for ruling before filing |
Do you have clean invoice and payment records? | Ready to file | Documentation work needed first |
The constitutional remand is the live variable. If the Court of Appeals rules for RJR on the equal-and-uniform challenge, the refund window expands significantly. If it rules against RJR, the statutory liability is confirmed. Either way, the time to evaluate your position is before the next ruling comes down, not after.
What to Do Before the Next Ruling Lands
Pull your Texas tax payment records from the last three years and identify periods where you paid taxes on products with a colorable argument under the Hancock test. If you paid under protest, confirm the status of that claim. If you have products on the market that the Comptroller has assessed and you believe do not meet the court’s “tobacco substitute” standard, document the product composition analysis now, while the witnesses and records are fresh.
The Comptroller holds the money. The burden is on your company to demonstrate you are entitled to it. That burden is winnable with the right preparation. It is a much harder position after the constitutional chapter closes and the documentation window has passed.
Contact Tobacco Tax Refund to evaluate your Texas excise tax position before the next ruling changes the landscape.
Frequently Asked Questions
My company paid Texas tobacco tax on nicotine pouches under protest. Does the Hancock ruling help or hurt me?
Both, depending on the question. The court ruled VELO-style pouches are taxable under the statute, which goes against the statutory refund argument. But the court preserved the constitutional challenge under Tex. Const. art. VIII, § 1(a) and remanded it to the Court of Appeals. If your protest payment was tied to the constitutional question, that claim is still alive. The statutory answer is not the final answer.
What exactly is the “tobacco substitute” standard the court used?
The majority held that a “tobacco substitute” under Tex. Tax Code § 155.001(15)(E) is something that substitutes for tobacco as used in the traditional tobacco products listed in the statute, products like snuff and snus. For VELO specifically, the court found that microcrystalline cellulose plus nicotine isolate functions as a one-for-one replacement for pulverized tobacco in that product category. That is the test: does your product’s composition function as a replacement for tobacco plant matter in that traditional-product context? If the answer for your product is no or genuinely uncertain, the analysis is different.
What if my product uses a different formulation than VELO?
Then Hancock may not apply to your product the same way. The court’s holding was fact-specific. If your product’s composition does not match the cellulose-plus-nicotine-isolate profile the court analyzed, or if its function relative to traditional tobacco products is meaningfully different, you may have a misclassification argument. That requires a product-by-product analysis against the court’s stated test, not a general dispute about nicotine.
We were not paying the Texas tobacco tax on our nicotine pouches. Are we exposed?
Potentially, yes. The Hancock ruling makes clear that VELO-style pouches are taxable, and the Comptroller was assessing before the case was filed. If your product falls within the ruling’s scope and you have been selling without a permit or paying the tax, you face back-tax liability plus penalties and interest under Tex. Tax Code § 155.185. Voluntary disclosure is generally the better path than waiting to be found. The timeline matters.
How long do I have to file a refund claim in Texas?
Texas law has specific limitations periods for tax refund claims. The Hancock ruling is recent, dated May 8, 2026, and the constitutional challenge is still pending, which affects how you measure the window for protest-based claims. Do not assume time is unlimited. The applicable limitations period, the form of your original protest, and the specific payment dates all affect your window. Get the calculation done before assuming you have time.
What documentation does the Texas Comptroller require for a tobacco tax refund?
Form 69-135 (amended distributor report), Form 69-136 (distributor receiving record), Form 69-315 (certificate of tax exempt sale), a signed letter identifying the reason, amount, and tax period, copies of invoices, and Form 01-137 if represented by an agent. Any outstanding Texas tax liabilities must be resolved before the Comptroller processes the refund. Incomplete filings are denied. The claim goes to the Comptroller at 111 E. 17th Street, Austin, TX 78774-0100.
Gerald J. Donnini II is a Florida Bar Board Certified Tax Lawyer and the founder of Tobacco Tax Refund. He represents tobacco product manufacturers, distributors, and importers in excise tax refund claims, audits, and appeals across the country.
Attorney Advertising Disclaimer: This blog post is provided for informational purposes only and does not constitute legal advice. The information contained here is general in nature and may not apply to your specific facts and circumstances. Reading this post does not create an attorney-client relationship. Past results do not guarantee similar outcomes in future matters. Tax laws change frequently; consult with a qualified attorney about your particular situation before taking any action.