This answer came from our lawyer in Washington yesterday...
Question 1: can private US citizens order such tobacco products from EU/Europe and have them imported to the US for private consumption?
FDA currently does not require foreign tobacco manufacturers to register their establishments and submit product lists. While section 905(h) of the FFDCA requires foreign establishments to register “under regulations promulgated by the Secretary,” and section 905(i)(1) requires foreign registrants to file product lists, FDA has not promulgated foreign establishment registration regulations. Moreover, in its November 2009 Guidance for Industry: Registration and Product Listing for Owners and Operators of Domestic Tobacco Product Establishments, FDA specifically stated that an importer who does not own or operate a domestic establishment is not subject to the establishment registration or product listing requirements. Accordingly, a foreign manufacturer who does not own or operate a domestic establishment currently does not have to register or submit a product list. Such a company could sell tobacco products through delivery sales directly to U.S. citizens.
Question 2: do these tobacco orders/products fall under the PACT Act?
Regardless of whether the foreign manufacturer has registered with or submitted a product list to FDA, the parties to an overseas internet sale will have to comply with the PACT Act, which amended the Jenkins Act. Section 2A(d)(1) of the Jenkins Act, as amended by the PACT Act, prohibits a delivery seller from delivering cigarettes or smokeless tobacco to a common carrier (e.g., UPS) before the applicable state and local excise taxes have been paid and the required stamps or other indicia of payment have been applied to the product. Section 2A(d)(2) may exempt a delivery seller from liability if the state or local government of the place where the product is to be delivered requires or otherwise permits delivery sellers to collect excise taxes directly from consumers and remit the funds to the state or local government. The exemption only applies if the delivery seller actually collects and remits these taxes in accordance with state or local law.
Question 3: who is responsible for paying the Federal Tobacco tax, the local state tax and the local sales tax for overseas orders - the private US citizen or the EU/European company selling the tobacco product?
Whether the consumer will pay the state or local tax directly to the state or local government will depend on whether the state or local government requires or permits delivery sellers to collect and remit these taxes. If the state or local government requires it, the seller will collect and remit the taxes. If the state or local government permits it, the seller will have a choice. Otherwise, the consumer will have to pay, in which case the state government could use the delivery seller’s monthly reports to ensure compliance.
The consumer is responsible for the federal excise tax. According to the Alcohol and Tobacco Tax and Trade Bureau’s (“TTB’s”) March 2009 FAQs, “. . . [C]onsumers who order tobacco products to be shipped to them from outside the United States are not exempt from payment of Federal excise tax and customs duties due on these products when imported.” See also 15 U.S.C. § 5703(a)(1) (providing that the tobacco product “importer” is liable for federal tobacco excise taxes); § 5702(k) (defining “importer” as a person to whom foreign “nontaxpaid tobacco products” are shipped). We have made several calls to TTB to determine the logistics for consumer payment of the federal excise tax in this situation, and we are awaiting a return call from a specialist on tobacco excise tax issues. We will update you if the phone call yields more useful information.
If you need more specific information on tax-related issues, we could consult with a tax attorney who specializes in this area. In the meantime, please let us know if our responses have raised additional questions for you.
Thank you but we are a bit confused, doesn't Pact Act require the seller to always be responsible for paying the state tobacco tax and the sales tax, whether or not it's a foreign company selling into the US from outside the US or a domestic company?
Section 2A(a) of the amended act requires delivery sellers to comply with all state and local requirements as though the sales occurred in the state or local government unit to which the cigarettes or smokeless tobacco are delivered. These requirements include, for example, licensing and taxes. States require distributors to pay excise taxes on these products prior to distribution, and some states, like California, require distributors to purchase stamps to affix to the packages to prove that the tax has been paid. See California Cigarette Distributor Licensing and Stamp Act Guide (2007). Thus, under section 2A(d), the delivery sellers would have to buy stamps and affix them to any California shipments. Note that some smaller local government units also tax tobacco products (e.g., New York City).
The act also contemplates that a state or local government could permit or require delivery sellers to collect these excise taxes at the time of purchase and later remit them to the government rather than paying them before shipment. If permitted but not required to do so, sellers would have the choice between the two options. If the seller does not pay or collect these taxes from the consumer, the consumer will be liable for the taxes, and the seller will have violated the PACT Act.
Question 1: can private US citizens order such tobacco products from EU/Europe and have them imported to the US for private consumption?
FDA currently does not require foreign tobacco manufacturers to register their establishments and submit product lists. While section 905(h) of the FFDCA requires foreign establishments to register “under regulations promulgated by the Secretary,” and section 905(i)(1) requires foreign registrants to file product lists, FDA has not promulgated foreign establishment registration regulations. Moreover, in its November 2009 Guidance for Industry: Registration and Product Listing for Owners and Operators of Domestic Tobacco Product Establishments, FDA specifically stated that an importer who does not own or operate a domestic establishment is not subject to the establishment registration or product listing requirements. Accordingly, a foreign manufacturer who does not own or operate a domestic establishment currently does not have to register or submit a product list. Such a company could sell tobacco products through delivery sales directly to U.S. citizens.
Question 2: do these tobacco orders/products fall under the PACT Act?
Regardless of whether the foreign manufacturer has registered with or submitted a product list to FDA, the parties to an overseas internet sale will have to comply with the PACT Act, which amended the Jenkins Act. Section 2A(d)(1) of the Jenkins Act, as amended by the PACT Act, prohibits a delivery seller from delivering cigarettes or smokeless tobacco to a common carrier (e.g., UPS) before the applicable state and local excise taxes have been paid and the required stamps or other indicia of payment have been applied to the product. Section 2A(d)(2) may exempt a delivery seller from liability if the state or local government of the place where the product is to be delivered requires or otherwise permits delivery sellers to collect excise taxes directly from consumers and remit the funds to the state or local government. The exemption only applies if the delivery seller actually collects and remits these taxes in accordance with state or local law.
Question 3: who is responsible for paying the Federal Tobacco tax, the local state tax and the local sales tax for overseas orders - the private US citizen or the EU/European company selling the tobacco product?
Whether the consumer will pay the state or local tax directly to the state or local government will depend on whether the state or local government requires or permits delivery sellers to collect and remit these taxes. If the state or local government requires it, the seller will collect and remit the taxes. If the state or local government permits it, the seller will have a choice. Otherwise, the consumer will have to pay, in which case the state government could use the delivery seller’s monthly reports to ensure compliance.
The consumer is responsible for the federal excise tax. According to the Alcohol and Tobacco Tax and Trade Bureau’s (“TTB’s”) March 2009 FAQs, “. . . [C]onsumers who order tobacco products to be shipped to them from outside the United States are not exempt from payment of Federal excise tax and customs duties due on these products when imported.” See also 15 U.S.C. § 5703(a)(1) (providing that the tobacco product “importer” is liable for federal tobacco excise taxes); § 5702(k) (defining “importer” as a person to whom foreign “nontaxpaid tobacco products” are shipped). We have made several calls to TTB to determine the logistics for consumer payment of the federal excise tax in this situation, and we are awaiting a return call from a specialist on tobacco excise tax issues. We will update you if the phone call yields more useful information.
If you need more specific information on tax-related issues, we could consult with a tax attorney who specializes in this area. In the meantime, please let us know if our responses have raised additional questions for you.
Thank you but we are a bit confused, doesn't Pact Act require the seller to always be responsible for paying the state tobacco tax and the sales tax, whether or not it's a foreign company selling into the US from outside the US or a domestic company?
Section 2A(a) of the amended act requires delivery sellers to comply with all state and local requirements as though the sales occurred in the state or local government unit to which the cigarettes or smokeless tobacco are delivered. These requirements include, for example, licensing and taxes. States require distributors to pay excise taxes on these products prior to distribution, and some states, like California, require distributors to purchase stamps to affix to the packages to prove that the tax has been paid. See California Cigarette Distributor Licensing and Stamp Act Guide (2007). Thus, under section 2A(d), the delivery sellers would have to buy stamps and affix them to any California shipments. Note that some smaller local government units also tax tobacco products (e.g., New York City).
The act also contemplates that a state or local government could permit or require delivery sellers to collect these excise taxes at the time of purchase and later remit them to the government rather than paying them before shipment. If permitted but not required to do so, sellers would have the choice between the two options. If the seller does not pay or collect these taxes from the consumer, the consumer will be liable for the taxes, and the seller will have violated the PACT Act.
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