Information Release

XT 2016-03 – Other Tobacco Products Tax: Guidance for Distributors and Retailers of Pipe Tobacco – Issued February, 2016

This information release is provided to clarify the responsibilities of distributors and retailers of pipe tobacco. Pursuant to R.C. 5743.54, each other tobacco products (OTP) distributor must maintain complete and accurate records of tobacco sales and mark invoices reflecting sales of tobacco to show the payment of OTP tax. Retailers are also required to maintain records that reflect the OTP tax paid.

Recommended Best Practices for OTP Distributors of Pipe Tobacco

The Department acknowledges that there are some situations where retailers change the name of the pipe tobacco purchased from a manufacturer or distributor. However, when a retailer changes the name of a tobacco product, the tax-paid invoice from the distributor no longer matches the product being sold at retail. In order to accommodate this known practice, the Department suggests that a distributor of pipe tobacco invoice the product in a manner that provides the manufacturer’s name, as well as any known names under which the retailer intends to sell the product (alias names). Additionally, distributors are encouraged to indicate on the packaging the invoice date, invoice number, and alias name(s). This information allows the Department to ensure that all tobacco products in the marketplace are tax-paid.

Selling Pipe Tobacco at Retail

In order for the Department to properly enforce the OTP tax on pipe tobacco, the Department needs to connect invoices with products in inventory. To avoid having tobacco products confiscated at retail, the Department advises that retail dealers protect the integrity of their tax-paid pipe tobacco and all other tobacco products by incorporating as many of the following controls as their business practice permits. Incorporating these safeguards will assist the Department in appropriately distinguishing taxed tobacco from untaxed tobacco, which will ensure legal product is not mistaken as contraband:

·         Keep an inventory log that is specific to each opened bag of bulk tobacco.  The log should keep track of distributor name; invoice number; invoice date; beginning quantity and date received from distributor; as well as dates, quantities, disposition (such as “refill floor display” or “sale to customer”) of product and any other pertinent information subsequent to the opening of the bag. Any updates made to the log should be initialed by the person making the update. When the bag has been emptied, it should be thrown away, noting such disposal on the log. Logs should be readily accessible for bulk product currently utilized by the retailer, and shall be retained for a period of three years.

·         Identify the manufacturer/brand of the pipe tobacco by labeling the container. The label should identify the manufacturer name of the pipe tobacco and does not need to be visible to the customer.

·         Maintain a sales journal that shows the ounces of pipe tobacco sold. The journal should reflect the date of sale, the number of ounces, and the name of the product sold.

Blending Pipe Tobacco as a Manufacturer

 

The Department acknowledges that some consumers of pipe tobacco prefer a blend of multiple brands of tobacco. However, pursuant to 27 CFR 40.61, combining two or more separate pipe tobacco products is only permitted when performed by either (1) the consumer or (2) the retail dealer in front of a waiting customer. A distributor or retail dealer may not blend two distinct products into one container to create a separate, unique product for sale at retail. Failure to adhere to this standard may result in the confiscation of the blended product, and could require the distributor or retail dealer to obtain a manufacturer’s license.

Please contact the Department at 1-855-466-3921 with any questions regarding this release.

Ohio Department of Taxation
Excise and Energy Tax Division
P.O. Box 530
Columbus, OH 43216-0530
Telephone: (855) 466-3921, option 3
Fax: (206) 350-6722
Website: tax.ohio.gov