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Audit Procedures for Cigarette Tax
Chapter 1 – Permits, Records, and Reports
Permits
To engage in business as a manufacturer, distributor, importer, wholesaler, bonded agent, or retailer, a person must apply for and receive the applicable permit from the Comptroller. Permits are required for each place of business owned or operated by a manufacturer, distributor, importer, wholesaler, bonded agent, or retailer. The types of permits include:
- Manufacturer: A person who manufactures and sells cigarettes to a distributor or importer if the cigarettes are manufactured outside the United States. The permit fee for a manufacturer with representation in Texas is $300 (as of 11/19/2003). The permit expires on the last day of February of each year
- Distributor: A person who is authorized to purchase unstamped packages of cigarettes from manufacturers. The distributor permit fee is $300 (as of 11/19/2003). The permit expires on the last day of February of each year.
- Importer: A person who ships, transports or imports into Texas cigarettes manufactured outside the United States. There is no fee required to obtain an importer permit. The permit expires on the last day of February of each year.
- Wholesaler: A person, including a manufacturer's representative, who sells or distributes stamped cigarettes in Texas for resale. The wholesaler permit fee is $200 (as of 11/19/2003). The permit expires on the last day of February of each year.
- Bonded Agent: A person in Texas who is an agent of a manufacturer outside this state, and receives unstamped cigarettes in interstate commerce, and stores the cigarettes for distribution or delivery to distributors as directed by the manufacturer. The bonded agent permit fee is $300 (as of 11/19/2003). The permit expires on the last day of February of each year.
- Retailer: A person who sells cigarettes to consumers. The retailer permit fee is $180 (as of 11/19/2003). The permit expires on the last day of May of each even-numbered year.
Cigarette Tax Recovery Trust Fund
A distributor who does not want to pay in advance for cigarette stamps must be part of the Cigarette Tax Recovery Trust Fund. ( Tax Code Section 154.051) The Cigarette Tax Recovery Trust Fund is a private trust fund established outside the state treasury to secure the payment of cigarette taxes by distributors who contribute to the fund. The distributors contribute to an account in the trust fund in the distributor's name. When the balance in the account equals 20 percent of the designated amount of stamps requested by the distributor to be purchased in any one month, the distributor's account becomes vested and the distributor can purchase stamps without advance payment.
Until a distributor acquires a vested interest in the fund, they may be required to post with the Comptroller an irrevocable letter of credit to secure the payment of cigarette taxes by the distributor. The Comptroller may not ship stamps to a distributor not having a vested interest in the trust fund without payment until the distributor posts the required letter of credit.
The Comptroller is the trustee of the fund and receives five percent of the interest earned as compensation for serving as trustee of the fund.
Records Required
Distributors, wholesalers, bonded agents, and export warehouses are required to keep records at each place of business for all cigarettes purchased or received, including records of those cigarettes for which no tax is due. Retailers are required to keep records of all cigarettes purchased and received at their principal place of business. Specific requirements are found in Tax Code Section 154.201.
Distributors are required to keep at each place of business records for stamps purchased or received from the Comptroller. See Tax Code Section 154.202.
Distributors and wholesalers are required to keep at each place of business records of sales, distributions, exchanges, or use of cigarettes. Specific requirements are found in Tax Code Section 154.203.
Manufacturers are required to keep records of sales of cigarettes to permit holders. These requirements are found in Tax Code Section 154.204. A manufacturer's representative is also required to maintain records for purchases or sales of cigarettes from or to a permittee in Texas. See Tax Code Section 154.205.
Common carriers are required to maintain records of cigarettes transported into Texas. See Tax Code Section 154.207. Requirements for bonded agents are found in Tax Code Section 154.208.
Records must be maintained for four years. Failure to produce records is considered evidence that the cigarettes were received for the purpose of making a first sale without payment of the tax. Refer to Tax Code Section 154.209 and Tax Code Section 154.211.
Reports
Chapter 154 of the Tax Code requires distributors to file with the Comptroller Form 69-100 Texas Distributor Monthly Report of Cigarettes and Stamps on or before the last day of each month. In addition to this report, the following supplementary reports are required as supporting documentation:
- Form 69-108 Distributor Receiving Record of Cigarettes
- Form 69-109 Distributor Receiving Record of Cigarette Tax Stamps
- Form 69-110 Distributor Report of Interstate Sales of Cigarettes
- Form 69-302 Certificate of Tax Exempt Sales — Unstamped Cigarettes, Untaxed Cigars and/or Untaxed Tobacco Products (prior to 09/01/2009)
- Form 69-315 Certificate of Tax Exempt Sale — effective 09/01/2009
These forms can be found on our website.
Chapter 154 of the Tax Code also requires manufacturers who sell cigarettes to a permit holder to file a report on or before the last day of each month. There is no set form for this report.
(Revised 09/2010)