PART 1. COMPTROLLER OF PUBLIC ACCOUNTS

CHAPTER 3. TAX ADMINISTRATION

SUBCHAPTER JJ. CIGARETTE, E-CIGARETTE, AND TOBACCO PRODUCTS REGULATION

34 TAC §3.1207

The Comptroller of Public Accounts proposes new §3.1207, concerning e-cigarette retailer permits. The comptroller creates this rule to implement portions of Senate Bill 248, 87th Legislature, 2021, relating to regulating permits for the sale or delivery of e-cigarettes.

This section provides guidance on the permitting of the retail sale of e-cigarettes as provided in new Health and Safety Code, Chapter 147 (E-cigarette Retailer Permits).

In subsection (a), the comptroller defines commercial business location, e-cigarette retailer, permit holder, and place of business as found in Health and Safety Code, §147.0001 (Definitions); e-cigarette as found in Health and Safety Code, §161.081 (Definitions); and marketplace, marketplace provider and marketplace seller as found in Tax Code, §151.0242 (Marketplace Providers and Marketplace Sellers).

In subsection (b), the comptroller states that this section does not apply to a product that is approved for use in the treatment of nicotine or smoking addiction and is labeled with a "Drug Facts" panel.

The comptroller provides the permitting requirements and application process in subsection (c), effective January 1, 2022, for a person engaging in business as an e-cigarette retailer in Texas.

In subsection (d), the comptroller provides information on permit periods and applicable permit fees for new permits and renewals.

The comptroller provides payment requirements for obtaining an e-cigarette retailer permit in subsection (e).

In subsection (f), the comptroller includes qualification guidelines regarding the issuance of an e-cigarette retailer permit.

The comptroller lists requirements for the display of an e-cigarette retailer permit in subsection (g).

In subsection (h), the comptroller provides the conditions under which the comptroller may deny an application for an e-cigarette retailer permit.

The comptroller provides information related to the summary suspension of an e-cigarette retailer permit in subsection (i).

In subsection (j), the comptroller provides information relating to the final revocation or suspension of an e-cigarette retailer permit.

The comptroller addresses administrative penalties in subsection (k) for a person who violates provisions of this section.

In subsection (l), the comptroller provides the applicable offenses that may be committed by a person who engages in e-cigarette retailer related business without an e-cigarette retailer permit.

Brad Reynolds, Chief Revenue Estimator, has determined that during the first five years that the proposed new rule is in effect, the rule: will not create or eliminate a government program; will not require the creation or elimination of employee positions; will not require an increase or decrease in future legislative appropriations to the agency; will not require an increase or decrease in fees paid to the agency; will not increase or decrease the number of individuals subject to the rule's applicability; and will not positively or adversely affect this state's economy.

Mr. Reynolds also has determined that the proposed new rule would benefit the public by providing guidance on e-cigarette retailer permits. There would be no anticipated significant economic cost to the public. This rule is proposed under Tax Code, Title 2, and does not require a statement of fiscal implications for small businesses or rural communities. The proposed new rule would have no significant fiscal impact on the state government, units of local government, or individuals.

You may submit comments on the proposal to Jenny Burleson, Director, Tax Policy Division, P.O. Box 13528 Austin, Texas 78711 or to the email address: tp.rule.comments@cpa.texas.gov. The comptroller must receive your comments no later than 30 days from the date of publication of the proposal in the Texas Register.

The new section is proposed under Tax Code, §111.002 (Comptroller's Rules; Compliance; Forfeiture) and §111.0022 (Application to Other Laws Administered by Comptroller) which provide the comptroller with authority to prescribe, adopt, and enforce rules relating to the administration and enforcement provisions of Tax Code, Title 2, and taxes, fees, or other charges which the comptroller administers under other law.

The new rule implements Health and Safety Code, Chapter 147 (E-cigarette Retailer Permits).

§3.1207.E-cigarette Retailer Permits.

(a) Definitions. The following words and terms, when used in this section, have the following meanings, unless the context clearly indicates otherwise.

(1) Commercial business location--The entire premises occupied by a permit applicant or a person required to hold a permit under Health and Safety Code, §147.0051 (E-cigarette Retailer Permit Required).

(2) E-cigarette--An electronic cigarette or any other device that simulates smoking by using a mechanical heating element, battery, or electronic circuit to deliver nicotine or other substances to the individual inhaling from the device; or a consumable liquid solution or other material aerosolized or vaporized during the use of an electronic cigarette or other device described by this paragraph.

(A) The term "e-cigarette" includes:

(i) a device described by this paragraph regardless of whether the device is manufactured, distributed, or sold as an e-cigarette, e-cigar, or e-pipe or under another product name or description; and

(ii) a component, part, or accessory for the device, regardless of whether the component, part, or accessory is sold separately from the device.

(B) The term "e-cigarette" does not include a prescription medical device unrelated to the cessation of smoking.

(3) E-cigarette retailer--A person who engages in the business of selling e-cigarettes to consumers, including a person who sells e-cigarettes to consumers through a marketplace.

(4) Marketplace--A physical or electronic medium through which persons other than the owner or operator of the medium make sales of taxable items. The term includes a store, Internet website, software application, or catalog.

(5) Marketplace provider--A person who owns or operates a marketplace and directly or indirectly processes sales or payments for marketplace sellers.

(6) Marketplace seller--A seller, other than the marketplace provider, who makes a sale of a taxable item through a marketplace.

(7) Permit holder--A person who obtains a permit under Health and Safety Code, §147.0052 (Issuance of Permit).

(8) Place of business--

(A) a commercial business location where e-cigarettes are sold;

(B) a commercial business location where e-cigarettes are kept for sale or consumption or otherwise stored; or

(C) a vehicle from which e-cigarettes are sold.

(b) Inapplicability. This section does not apply to a product that is:

(1) approved by the United States Food and Drug Administration for use in the treatment of nicotine or smoking addiction; and

(2) labeled with a "Drug Facts" panel in accordance with regulations of the United States Food and Drug Administration.

(c) E-cigarette retailer permits.

(1) Requirements.

(A) Beginning January 1, 2022, a person may not engage in business as an e-cigarette retailer in Texas without a permit issued by the comptroller.

(B) An e-cigarette retailer shall obtain a permit for each place of business owned or operated by the e-cigarette retailer.

(C) The comptroller may not issue a permit for a place of business that is a residence or a unit in a public storage facility.

(D) A marketplace seller shall obtain a permit for each marketplace where the seller makes sales of e-cigarettes.

(E) A marketplace provider shall obtain a permit when selling e-cigarettes on behalf of marketplace sellers.

(2) Application.

(A) The applicant shall complete Form AP-242, Texas Application for E-Cigarette Retailer Permit, or any successor to that form promulgated by the comptroller.

(B) The applicant shall accurately complete all information required by the application and provide the comptroller with any additional information the comptroller considers necessary.

(C) Each applicant that applies for a permit to sell e-cigarettes from a vehicle shall provide the make, model, vehicle identification number, registration number, and any other information concerning the vehicle the comptroller requires.

(D) All financial information provided under this section is confidential and not subject to Government Code, Chapter 552 (Public Information).

(d) Permit period; fees.

(1) An initial application and a renewal of an existing permit shall be accompanied by the permit fee.

(A) A permit issued under this section expires on the last day of May of each even-numbered year.

(B) The permit fee for the full two years is $180. A new applicant permit fee is prorated according to the number of months remaining during the period that the permit is to be in effect.

(C) A person who holds an active cigarette or tobacco product permit under Tax Code, §§154.101 (Permits), 154.102 (Combination Permit) or 155.041 (Permits), for the same business location at the time of an application or renewal of an application, pays a reduced amount of one-half the retailer permit fee.

(2) A person who does not renew an e-cigarette retailer permit by the expiration of a current permit shall pay a late fee of $50 in addition to the application fee for the permit.

(3) If a permit expires within three months from the date of issuance, the comptroller may collect the prorated permit fee amount for the remaining months of the current period and, with the consent of the permit holder, may collect the permit fee amount for the next permit period and issue permits for both periods.

(4) A person issued a permit for a place of business that permanently closes before the permit expiration date is not entitled to a refund of the permit fee.

(e) Payment for e-cigarette retailer permit.

(1) An applicant for a permit shall remit the required fee with the application.

(2) The payment shall be made in cash or by money order, check, or credit card.

(3) The comptroller may not issue a permit in exchange for a check until after the comptroller receives full payment on the check.

(f) Issuance of an e-cigarette retailer permit.

(1) The comptroller will issue a permit to an applicant if the comptroller:

(A) has received an application and fee;

(B) does not reject the application and deny the permit under subsection (h) of this section; and

(C) determines that issuing the permit will not jeopardize the administration and enforcement of Health and Safety Code, Chapter 147 (E-cigarette Retailer Permits).

(2) The permit will be issued for a designated place of business, except as provided by subsection (h) of this section.

(3) Permits for engaging in business as an e-cigarette retailer are non-assignable.

(g) Display of an e-cigarette retailer permit.

(1) A permit holder shall keep the permit on public display at the place of business for which the permit was issued.

(2) A permit holder who has a permit assigned to a vehicle shall post the permit in a conspicuous place on the vehicle.

(h) Denial of e-cigarette retailer permit. The comptroller may reject an application and deny a permit if the comptroller finds, after notice and opportunity for hearing:

(1) the premises where business will be conducted are not adequate to protect the e-cigarettes; or

(2) the applicant or managing employee, or if the applicant is a corporation, an officer, director, manager, or any stockholder who holds directly or through family or partner relationship 10% or more of the corporation's stock, or, if the applicant is a partnership, a partner or manager:

(A) has failed to disclose any of the information required by subsection (c)(2) of this section; or

(B) has previously violated provisions of Health and Safety Code, Chapter 147.

(i) Summary suspension of permit.

(1) The comptroller may suspend a permit holder's permit without notice or a hearing for the permit holder's failure to comply with this section if the permit holder's continued operation constitutes an immediate and substantial threat.

(2) If the comptroller summarily suspends a permit holder's permit, proceedings for a preliminary hearing before the comptroller or the comptroller's representative must be initiated simultaneously with the summary suspension. The preliminary hearing shall be set for a date not later than the 10th day after the date of the summary suspension, unless the parties agree to a later date.

(3) To initiate a proceeding to summarily suspend a permit holder's permit, the comptroller shall serve notice on the permit holder informing the permit holder of the right to a preliminary hearing before the comptroller or the comptroller's representative and of the time and place of the preliminary hearing. The notice must be personally served on the permit holder or an officer, employee, or agent of the permit holder or sent by certified or registered mail, return receipt requested, to the permit holder's mailing address as it appears in the comptroller's records. The notice must state the alleged violations that constitute the grounds for summary suspension. The suspension is effective at the time the notice is served. If notice is served in person, the permit holder shall immediately surrender the permit to the comptroller. If notice is served by mail, the permit holder shall immediately return the permit to the comptroller upon receipt of the notice.

(4) At the preliminary hearing, the permit holder must show cause why the permit should not remain suspended pending a final hearing on suspension or revocation.

(5) Government Code, Chapter 2001, (Administrative Procedure), does not apply to a summary suspension under this section.

(6) Subsection (j) of this section governs the hearing for final suspension or revocation of a permit under this section.

(j) Final suspension or revocation of permit.

(1) The comptroller may revoke or suspend a permit holder's permit if the comptroller finds, after notice and the opportunity for a hearing, that the permit holder violated a provision of this section.

(2) If the comptroller intends to suspend or revoke a permit, the comptroller shall provide the permit holder with written notice that includes a statement:

(A) of the reason for the intended revocation or suspension; and

(B) that the permit holder is entitled to a hearing by the comptroller on the proposed suspension or revocation.

(3) The comptroller shall deliver the written notice by personal service or by mail to the permit holder's mailing address as it appears in the comptroller's records. Service by mail is complete when the notice is deposited with the United States Postal Service.

(4) If the permit holder requests a hearing, the comptroller will set a hearing date. The hearing on the revocation or suspension of the permit holder's permit is treated in the same manner as a hearing on the imposition of an administrative penalty for a violation of Health and Safety Code, §161.0901 (Disciplinary Action Against Cigarette, E-Cigarette, and Tobacco Product Retailers) and is governed by §1.21 of this title (relating to Cigarette, E-cigarette, Cigar, and Tobacco Tax Hearings).

(5) A permit holder may appeal the comptroller's decision to a district court in Travis County not later than the 30th day after the date the comptroller's decision becomes final.

(6) A person whose permit is suspended or revoked may not sell, offer for sale, or distribute e-cigarettes from the place of business to which the permit applied until a new permit is granted or the suspension is removed.

(k) Penalties.

(1) A person violates the provisions in this section if the person:

(A) engages in the business of an e-cigarette retailer without a permit; or

(B) is a person who is subject to a provision of this section and who violates the provision.

(2) A person who violates a provision of this section shall pay to the state a penalty set by the comptroller of not more than $2,000 for each violation.

(3) Each day on which a violation occurs is a separate violation.

(4) The attorney general shall bring suit to recover penalties under this subsection.

(5) A suit under this subsection may be brought in Travis County or another county having jurisdiction.

(l) Failure to have a permit; offense.

(1) A person commits an offense if the person acts as an e-cigarette retailer; and:

(A) receives or possesses e-cigarettes without having a permit;

(B) receives or possesses e-cigarettes without having a permit posted where it can be easily seen by the public; or

(C) sells e-cigarettes without a permit.

(2) An offense under this subsection is a Class A misdemeanor.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on February 12, 2024.

TRD-202400547

Jenny Burleson

Director, Tax Policy Division

Comptroller of Public Accounts

Earliest possible date of adoption: March 24, 2024

For further information, please call: (512) 475-2220