Understanding the PACT Act: Essential Guidelines for Tobacco Sellers and Shippers

The Prevent All Cigarette Trafficking (PACT) Act, 15 U.S.C. $ 375 et seq., is a crucial federal law aimed at curbing tax evasion on tobacco products and preventing sales to minors. If you're involved in the online sale or shipping of tobacco products, here are five key things you need to know to stay compliant and avoid hefty penalties.

1. What Products Are Covered?

The PACT Act encompasses various tobacco products including:

  • Cigarettes
  • Roll-your-own tobacco
  • Cigarette and cigar wrappers
  • Electronic Nicotine Delivery Systems (ENDS) and their components, regardless of the substance used (e.g., nicotine or cannabis derivatives)
  • Smokeless tobacco

Understanding the specific definitions within the PACT Act is vital. For instance, the Bureau of Alcohol, Tobacco, and Firearms (ATF) actively enforces the act and may classify filtered little cigars as cigarettes.

2. Who Is Covered?

The PACT Act applies to:

  • Interstate Sellers and Shippers: Those who sell, transfer, or ship covered products in interstate commerce where such products are subject to tax.
  • Delivery Sellers: Individuals or businesses making remote sales of tobacco products to consumers, which includes businesses not lawfully operating.
  • Common Carriers and Delivery Services: Companies like DHL, UPS, and FedEx involved in the delivery of tobacco products.

3. Registration and Reporting Requirements

  • Registration: Covered entities must register with the ATF and the tobacco tax administrators of the states where shipments are made. Some states also require registration with the state attorney general’s office and may necessitate a tobacco license.
  • Reporting: Monthly reports must be submitted to state tobacco tax administrators and chief law enforcement officers, using either standardized forms or state-specific forms.

4. Impact on Shipping and Delivery Sales

  • Nonmailability: Tobacco products (cigarettes, roll-your-own tobacco, smokeless tobacco, and ENDS) cannot be mailed through the USPS, except under certain statutory exceptions.
  • Delivery Sale Requirements:
    • All applicable state, local, tribal, and other laws apply to delivery sellers as if the sale occurred in the delivery jurisdiction.
    • Special labeling is required on shipping packages.
    • Shipments are limited to 10 pounds per delivery.
    • Age verification is mandatory, with the purchaser needing to sign upon delivery and present government-issued ID.
    • Sales records must be kept for four years.
    • State or local excise taxes must be paid before delivery.

5. Penalties for Noncompliance

  • Criminal Penalties: Violations can result in up to three years of imprisonment, criminal fines, or both.
  • Civil Penalties for Delivery Sellers: These can include fines of $5,000 for the first violation and $10,000 for subsequent violations, or 2% of the gross sales of covered products in the prior year.
  • Injunctive Relief and Civil Penalties: State AGs, local governments, Native American tribes, and TTB-permitted entities can seek these for violations.
  • Noncompliant List: ATF can list noncompliant persons, distributed to state AGs, tax administrators, and delivery services.

Best Practices for Compliance

  • Designate personnel to oversee PACT Act compliance.
  • Ensure registration and reporting are up-to-date.
  • Use reminders for monthly reporting deadlines.
  • Conduct internal audits to check compliance.
  • Verify that business customers are lawfully operating.
  • Keep records of compliance, including registration and reporting forms, invoices, and bills of lading.

For specific questions or concerns about the PACT Act, consulting with a legal professional is advisable.

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