Ohio License and Tax Rules for Selling Tobacco Products
Tobacco Businesses in Ohio are subject to the various tax and licensing requirements administered through the Department of Taxation. If your business has transactions involving tobacco products, you may need to take certain steps to ensure compliance and to avoid unnecessary penalty. Here, we explain the various licenses needed for selling tobacco products in Ohio, who is responsible for paying related taxes, and the applicable penalties for non-compliance. Notices from the Ohio Department of Taxation about your tobacco business can lead to serious consequences. Having a firm understanding of this regulatory framework can help you think about next steps and when enlisting the help of a professional may be appropriate.
What Type of Ohio License(s) Do You Need to Sell Other Tobacco Products?
Compared to other states, Ohio has a simplified licensing model for businesses that possess, sell, or transfer other tobacco products (OTP). You will need an Ohio vendor’s license at minimum, but some businesses will also need to obtain a distributor license from the Department of Taxation. Ohio considers you a distributor if your sales of tobacco meet any of the following conditions:
- Manufacturers who sell or distributes tobacco products to a retail dealer in Ohio.
- Wholesalers in Ohio who receive tobacco products from manufacturers or who receive tobacco product with unpaid tax.
- Wholesale dealers outside Ohio who sell to wholesalers or retailers in Ohio.
- Retailers who receive tobacco products from a distributor who has not or will not pay tax on it (this includes retailers who have a signed statement with a manufacturer to pay the applicable tobacco tax).
You will need a distributor license for each location where you receive or distribute tobacco products and you will need to renew that license by February 1 of each year. Each license requires payment of a $1,000 annual fee. All other retailers or businesses that receive and sell products with the Ohio tobacco tax already paid will need a general business vendor license. You can apply for both distributor and vendor licenses via the Ohio Business Gateway platform.
Compliance with the Ohio Tobacco Products Tax and Ohio Sales Tax
When it comes to transactions involving OTP, your business needs to be mindful of its obligations related to two Ohio taxes. The first is the Ohio tobacco products tax, and the second is standard sales tax. Your responsibilities related to these taxes will depend on where your business falls in the chain of distribution in Ohio.
Who Pays the Ohio Tobacco Products Tax?
The distributor is responsible for collecting and remitting the tobacco products tax to the Department of Taxation after making an initial sale or transfer of OTP into Ohio. Usually, this will be a manufacturer or wholesale dealer not located in Ohio. However, Ohio’s broad definition of “distributor” expands the scope of potential liability for the tobacco products tax to those who receive OTP with unpaid tax. This means the Department of Taxation could turn to other wholesalers, retailers, and even consumers who possess OTP that has not been taxed. Having invoice records that show payment of the tobacco products tax will be your best defense to not be held liable for distributors who collect, but fail to remit, tobacco tax to the state of Ohio.
The rate for the tobacco products tax varies based on the type of OTP you are selling. Those rates are as follows:
- Little cigars: 37% of the wholesale price.
- Premium cigars: Lesser of 17% of the wholesale price or the maximum tax amount per cigar.
- Vapor product: $.01 multiplied by the vapor volume.
- All other tobacco: 17% of the wholesale price.
Ohio requires distributors to electronically submit monthly tax returns along with payment of tax on or before the 23rd of each month for the prior month’s tobacco sales (e.g., January’s reporting is due February 23rd). As an incentive for timely filing returns and paying your tobacco products tax, distributors are eligible for a discount of 2.05% of the amount due.
Retailers Are Generally Liable for Collecting Ohio Sales Tax from Consumers
The sale of tobacco products to an end-user (i.e., consumer) is a retail sale, which subjects those transactions to Ohio’s sales tax. If you are a tobacco product retailer, then you have sales tax collection and remittance obligations along with filing of sales tax returns. For most retailers, your filing frequency will be monthly or quarterly with tax returns due on the 23rd of the month following the end of the reporting period. The Ohio state sales tax rate is 5.75%, although individual counties may impose additional rates that you will need to follow depending on the location of your retail tobacco sales.
Penalties for Non-Compliance with Ohio’s OTP Rules and Taxes
Ohio’s laws have various financial penalties, administrative consequences, and even criminal charges that can apply to tobacco businesses that fail to comply with their licensing and tax obligations. The severity of these penalties may depend on your specific circumstances but can generally include the following punishments:
- Failure to obtain Ohio Distributor License: Up to a $1,000 penalty.
- Tobacco products tax penalty: 10% of tax due for late filing and payment in addition to the accrual of interest at 3% annually. You also risk a suspension of your license to sell tobacco products, including the Department’s refusal to renew your license in the future.
- Sales tax penalty: Up to 15% of tax liability (or up to 50% if you collect sales tax but do not remit it to the Department) in addition to interest accrual at 3% annually.
- Other non-compliance: Failing to follow other Ohio laws related to selling tobacco may also result in penalties of both misdemeanor and felony criminal charges.
Get Help with Regulatory Compliance for Your Ohio Tobacco Business
Operating a tobacco business can be difficult enough without the added complexity of dealing with Ohio’s tax and licensing obligations. Still, taking a proactive approach in your management of these rules can help you in the event of an audit or challenging a subsequent tax assessment. If you have questions or were recently given a notice from the Department of Taxation, our tobacco tax and licensing consultants are available to help. We regularly serve as a representative for tobacco businesses to guide them through challenges related to their taxes and licensing, including audits, refunds, and appeals. We leverage our years of experience and knowledge so you can focus on running your business while we manage your interactions with the state of Ohio.
Schedule a consultation with Tobacco Tax Refund, Inc. today on Ohio’s tobacco license and tax issues.