In 2009, the U.S. Congress approved the Prevent All Cigarette Trafficking (PACT) Act to control the mailing of roll-your-own cigarettes and smokeless tobacco products via the U.S Postal Services (USPS). The Act, which took effect in June 2010, also aimed to curb illegal sales of tobacco products and tax avoidance.
Roughly ten years later, the federal government introduced a change to the PACT Act by signing the "Consolidated Appropriations Act, 2021" as part of the hefty COVID-19 relief package. The amendment expanded the PACT Act, which applied to cigarettes, to apply to many other products. Now the electronic nicotine delivery systems (ENDS) are included in the PACT Act and subject to policy changes.
These new changes in policy have created a huge compliance burden for many tobacco and related businesses.
This post looks at the new PACT Act requirements and what they control for businesses in this industry.
The PACT Act Amendment
The initial definition of "cigarette" under the Preventing Online Sales of E-Cigarettes to Children Act was modified to include ENDS. An ENDS product is any electronic device that dispenses a substance such as nicotine or flavor via an aerosolized solution to a consumer inhaling from the device.
Put broadly; ENDS include all accessories, components, liquids, and vaping products even if they do not contain nicotine. These could be; an e-cigar, an e-hookah, an advanced refillable vaporizer, an e-cigarette, an e-pipe, a vape pen, and any liquid, accessory, part, or component of any device they are not sold together.
Including ENDS on the PACT Act means that the Act's regulations capture nicotine-free e-liquids, Cannabinoids vape pens, synthetic nicotine e-cigarettes (tobacco-free), and more.
As such, retailers of these products must comply with policy changes and new requirements.
The New Requirements
Retailers of the products mentioned above expect to:
- Use a shipping company that confirms age (the recipient is 21 years and above) at delivery
- Be part of the third party confirmation of all sales
- Register with the U.S. Attorney General
- Register with the tobacco tax administrator in any state you sell the products.
- Keep five-year records of any incomplete deliveries or interruptions for failing to confirm the identity.
- Pay of all applicable local taxes
- Adhere to all PACT Act shipping requirements
- Share all transactions for a given state with the state tax administrator
When Does Enforcement for These Requirements Begin?
The above amendments took effect on and from March 28, 2021. Direct-to-consumer sales made via private service deliveries or common carriers must comply with requirements such as weight limits, labeling, and 21 and above age approval on delivery. Also, sales, including B2B sales, must adhere to the registration and reporting requirements.
Normally, the USPS ban does not apply to business-to-business deliveries of tobacco products. Therefore, provided businesses have licenses and permits to engage in research, distribution, export, import, and more. Then, USPS provides delivery services on their behalf. However, the postal service is expected to clarify whether ENDS remain permitted.
How Does the New PACT Act Change Burden Businesses?
Limited Shipping Options
Recently, businesses in the ENDS industry leveraged online sales channels to reach their consumers in response to changing consumer shopping trends.
To reach the products to consumers, ENDS retailers have been using USPS and other shipping companies. However, the PACT Act already prohibited direct deliveries of smokeless tobacco products and cigarettes to consumers through the Postal Service. Now, with ENDS part of the Act, USPS had until April 27, 2021, to enforce the mail ban.
Businesses were again dealt another blow when the United Parcel Service and Federal Express, the most commonly used vapor carriers in the U.S., revealed that they would stop delivering vapor products citing increased complexity to ship them.
Difficulties to Adhere to other Requirements
Although most ENDS retailers have put in place third-party age verification procedures and use verified shipping methods, the other requirements in the PACT Act present difficult hurdles.
In addition to the federal law change, now there are also state PACT Act reporting requirements. Individual states now require compliance, and unless online retailers have a unified process, they may struggle to adhere to all state-by-state guidelines and requirements. Even a minor error in compliance can lead to large penalties such as hefty fines, criminal charges, or a maximum of three-year prison term in some cases.
Currently, most vapor businesses are looking for arrangements with private shipping companies and expensive software solutions to help adhere to the PACT Act requirements. However, the future of small online retailers and vapor companies seems bleak. Expect them to face a hard time getting their products to the consumers.
Reach out for Assistance Regarding the PACT Act
At Tobacco Tax Refund, Inc., we provide licensing, tax, and other regulatory services to help your company comply and reduce harsh tax liabilities. Contact us today for assistance.