The PACT Act now includes vaping, cannabis, and other e-cigarettes
The omnibus and COVID-19 relief bill signed into law on December 27, 2020, was about more than stimulus payments and paycheck protection programs. Tucked between consolidated budgets and COVID-19 relief were key changes that will impact vaping, cannabis, and hemp retailers for years. The bill expanded the Prevent All Cigarette Trafficking (PACT) Act to include all electronic nicotine delivery systems (ENDS): vapes, vaporizers, vape pens, hookah pens, electronic cigarettes (e-cigarettes or e-cigs), and e-pipes.
What is the PACT Act?
The PACT Act was originally passed in 2009. It amended the Jenkins Act of 1949, which was designed to combat illicit sales and tax avoidance and required interstate shippers to report cigarette sales to state tobacco tax administrators. About the time the PACT Act became law, the FDA was given authority over tobacco products via the Tobacco Control Act.
Under the amended PACT Act, anyone who advertises, sells, transfers, or ships for profit cigarettes or smokeless tobacco in interstate commerce must comply with a host of complex registration requirements. They must also pay all applicable taxes, including excise tax, and adhere to monthly reporting requirements.
PACT Act requirements and considerations
The devil really is in the details of the PACT Act amendment. Understanding what you need to do to meet requirements, as well as what will make your business run more efficiently, will help you stay compliant.
Registration: If you sell cigarettes into a state — or if you advertise your product in that state in any way — you must register with both the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) and the tobacco tax administrator in the shipping state. The registration requirement applies to companies that sell directly to consumers as well as distributors and manufacturers shipping interstate. Note: If your website can be reached by a consumer in a state, that’s considered advertising; you’ll have to comply with all registration requirements even if you don’t sell to consumers in that state.
Not registering correctly can lead to a $5,000 to $10,000 fine for every instance of non-compliance.
Licensing: Sellers who previously didn’t meet minimum thresholds or were able to “fly under the radar” may now find they need one or more new business licenses. Registration requirements established by the new PACT Act are designed to serve as a check and balance: Business must now have all these requirements in order.
Tax compliance: Furthermore, businesses are now required to collect and remit all applicable federal, state, and local sales tax and excise taxes. Though not all states collect sales tax, the number of states where excise tax is imposed on vape products is growing fast: Georgia recently started taxing vapor products. If you’re unsure of your tax obligations, a nexus assessment can help uncover states where there’s risk of noncompliance.
The PACT Act also added new fields to existing returns, and new taxability codes were needed to stream into the modified state forms. You should ensure your tax and financial systems can handle this information. In addition, returns must be filed in all jurisdictions where you’re registered, even if no sales were made (a zero return).
Reporting: Under the PACT Act, businesses are required to file detailed shipping reports on a monthly cadence. You’ll need to provide a number of details about the orders you shipped: which product, how much, to whom, via what carrier, and more. You’ll need to provide a copy of each invoice and retail customer details for four years. Carriers will file a similar report.
Certificate management: If you’re selling to a distributor or retailer and not to an end user, it's critical to manage reseller certificates so you aren’t held liable for not collecting tax. If you’re audited and cannot reproduce this certificate, you’ll be responsible for any uncollected tax, plus applicable fees and penalties.
Rather than handling certificates manually, businesses dealing with a high volume of certificates may find it more efficient to use an automated system that’s tied directly into your ecommerce or POS system.
Five steps for ongoing PACT Act compliance
While it’s possible to manage these myriad details yourself, it’s a hassle. The PACT Act has greatly expanded compliance requirements for many sellers, added many new product taxability codes and tax returns, and created a logistical nightmare.
Failure to comply with the PACT Act can send your business up in smoke. Fortunately, the burden of compliance can be eased with the right expertise and technology. For example, Avalara can help:
- Ensure your PACT ACT registration and filing process is in place
- Make sure you have all required business licenses
- Set up a trustworthy, complete sales tax solution (and get a nexus assessment if you need one)
- Implement an excise tax solution that’s integrated with your sales tax solution
- Streamline with automated certificate management for both sales and excise tax
If you were one of the many vape or other tobacco product sellers unable to meet the March 27 PACT Act deadline, the Avalara Excise team can help you get to compliance quickly. We can also streamline other tax calculation, filing, certificate management, and business licensing requirements. Contact Avalara Excise today.
The 2021 sales tax changes report: midyear update
Your guide to navigating the complicated world of tax compliance and preparing for the future
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