What Your Tobacco Product Invoice Needs to Show

Tobacco Product Invoice

What Your Tobacco Product Invoice Needs to Show During a Tax Audit

As many retailers and suppliers know, a tobacco product tax inspection or audit is more of a when, not if, scenario. When the state agent appears at your place of business, they will want to see the records that account for the tax paid on your inventory. This is where your tobacco product’s invoice takes center stage.

Failure to produce sufficient documentation to support your tax compliance can result in suspension of your license, confiscated inventory, and financial penalty. Equally valuable, your invoicing is also key for supporting a tobacco tax refund claim. Don’t let routine inspections jeopardize your business and see how your invoice records measure up. While each state has the potential for unique invoicing standards, most will require the below information in some fashion.

1. The Contact Information of the Buyer and Seller

The invoice should make it clear who the buyer and seller of the tobacco products are. This information is important for the state to trace the OTP’s chain of possession and ensure you legally brought into the state. Relevant information to include in this section of the invoice could include:

  • The legal name of the business (including assumed business names)
  • The address of the business location
  • License number

2. The Amount and Type of Tobacco Product Being Sold

Not all tobacco products are taxed equally. Your invoice must demonstrate the precise nature of the tobacco products in your inventory. Along with the type of tobacco product, you must state the amount purchased. The metric used to state the amount should align with how the OTP tax applies to the specific type of product. For example, some items, like little cigars, might be taxed based on the number sold while items like loose leaf and snuff are often taxed based on the weight. When the tobacco product is taxed as a percentage of the wholesale sales price, the type is important for showing you applied the correct tax rate to the sale.

3. The Date of the Transaction

The date on the invoice is a critical piece of information when defending your tobacco products tax payment and reporting. The invoice date is what auditors will presume as the date of transfer and is what sets period in which tobacco tax is due. Most states have a monthly reporting period for their tobacco tax returns with filing and payment due the following month. For example, Texas’ reporting deadline is the 25th of the month, so January’s tobacco taxes would be due on February 25th. During an audit, state agents will reconcile your tobacco tax returns with the dated invoices to confirm timely remittance.

4. An Itemized Statement of the Purchase Price and Ancillary Costs

When you buy or sell tobacco products, the price shown on the invoice usually includes more than the cost of the OTP alone. You might have other related charges for ancillary costs, including the following:

  • Delivery and handling fees
  • Federal excise taxes
  • Packaging costs

You may also have discounts or manufacturer’s coupons that apply to the sale. Having an invoice that identifies all this information will ensure you pay only the amount of tax you owe and support available tobacco tax refund claims when you pay tax on excluded amounts. For example, refunds could be available in states like Connecticut where the wholesale purchase price for calculating OTP tax does not specifically include amounts paid to reimburse federal excise tax.

5. The Tobacco Product Tax or Other Excise Tax Paid

Lastly, the invoice should state the amount of tobacco products tax owed on the OTP received. This amount should reconcile when added with the taxes shown on other invoices for the same reporting period when compared with the tax paid on your OTP return. Showing payment of tax for the OTP in your possession will mitigate the risk of a state inspector confiscating your inventory as contraband.

Need Help Settling a Tobacco Tax Audit or Refund Claim?

Your invoicing is the first line of defense when managing interactions with state revenue departments and auditors over your tobacco product taxes. While having accurate information on the invoice is the first step, you must ensure compliance with related requirements, such as having the invoices on-premises and readily available for inspection. When questions or concerns arise about your OTP taxes, let a call to our tobacco tax professionals be your first move.

Schedule a free consultation with Tobacco Tax Refund, Inc.