Each year, more and more companies begin to sell online. From clothes, to electronics, to even tobacco, companies have turned to the internet to sell to a larger customer base while saving substantially on overhead costs. Recent estimates show that online sales cross $500 billion and there appears to be no end in sight.
Selling mainstream products is somewhat simple by using platforms such as Amazon, Overstock, and Ebay. However, what if you are a tobacco distributor or retailer? Can you sell online? If so, do you have to abide by a state’s taxing and licensing obligations? This is a common question we receive from established companies and startups alike, as tobacco companies continue to establish their own online presence.
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 is generally prohibited, most states do permit the online sale of other tobacco products or cigars from a website. This includes tobacco related products such as blunt wraps and hookah tobacco.
However, there are some states, like Maryland, that have a blanket prohibition on the online sale of cigars or tobacco into their state. In fact, there are about ten states that will not allow your company to sell to customers unless the transaction occurs in a face-to-face setting. Thus, the first step for a tobacco or cigar wholesaler or retailer who wishes to sell online is to determine whether the company can sell into a particular jurisdiction.
While it is oftentimes difficult to get a clear answer on this topic from most governing agencies, , generally you can sell online into most states. Assuming you or your client’s company can sell online into a particular jurisdiction only heightens the confusion. Most states requires a business to acquire a wholesaler and/or retailer license to even sell tobacco into their state. This means that you can have no physical presence in a state and only make sales, yet you may still be required to obtain the requisite state license(s), pay the appropriate tax, and be subject to state tobacco audits.
State Tax Requirements for Selling Tobacco Online
While states will require you or your client’s company to obtain a license to sell into a particular jurisdiction, it is questionable as to whether this practice is legal. Most states also take the position that once you have a license, you also must pay or collect state taxes. Under the Constitution as well as existing case law, a state cannot force a company to comply with its taxing requirements unless the Company 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 or more recently, has sufficient sales to establish economic nexus with the state ($100k or $500k in annual sales is the threshold for most states). 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 be a direct violation of the 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 additional layers of federal obligations. For example, to manufacture or import tobacco, a company must usually obtain a federal manufacturing or import permit through TTB.
From a state perspective, the wholesale tobacco or cigar distributor must determine whether they can sell tobacco online into the state. From there, the company must determine 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 a 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 have a tobacco tax consultant on board.
At Tobacco Tax Refund, Inc., we assist companies with tax, licensing, and other regulatory issues to ensure compliance and minimize harsh tax liabilities. We also can review whether a company has been paying the correct amount of tax. If not, then we can offer refund of overpayment of tax services as well, as oftentimes companies overpay taxes due in fear of an audit or simply due to the complexity of the taxing laws. We offer competitive fixed fee pricing to determine where you need to get licensed and obtain the licenses for you, if necessary.
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 a shareholder in the law firm Moffa Sutton & Donnini, PA, based in Fort Lauderdale, Florida. Mr. Donnini has extensive knowledge handling wholesale tax controversy and refunds.
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 highly regulated industries such as 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