1. (a) Imposition of tax. A tax is imposed on a person who uses or disposes of cigarettes in this state. The tax rate is $20.50 per thousand on cigarettes weighing three pounds or less per thousand plus $2.10 per thousand on cigarettes weighing more than three pounds per thousand. The tax becomes due and payable when a person in this state receives cigarettes to make a first sale. The ultimate consumer or user of cigarettes in this state bears the impact of the tax; and, if another person pays the tax, the amount of the tax is added to the price to the ultimate consumer or user. A person who pays the tax shall securely affix a stamp to each individual package of cigarettes to show payment of the tax. Absence of a stamp on an individual package of cigarettes is notice that the tax has not been paid.
2. (b) Cigarette tax stamp meters. Cigarette distributors are not authorized to use stamp metering machines as evidence of payment of the cigarette tax.

3. (c) Cigarette tax stamp credits.

   1. (1) Allowance of credit for cigarette tax stamps. The comptroller may authorize credit on:

      1. (A) stamps that are affixed to cigarette packages that have been damaged or are unfit for sale and have been returned to the manufacturer in accordance with Tax Code, §154.306;
      2. (B) stamps that have been destroyed by vandalism, fire, flood, or other natural disasters. The distributor must present evidence that such stamps were purchased by the distributor and were subsequently destroyed by such natural disaster;
      3. (C) stamps that have been erroneously affixed to cigarette carton flaps rather than the cigarette packages. The distributor must submit the stamped carton flaps to the comptroller in order to obtain credit. The comptroller will issue an authorization for refund of the tax with disallowance of the stamping discount;
      4. (D) stamps used to restamp cigarette packages provided that the original tax stamps were of an illegible quality and the restamping is required by the comptroller's office. There is no stamping allowance for restamped cigarettes; or
      5. (E) stamps that have been torn or otherwise damaged by a stamping machine. The distributor must submit the damaged stamps to the comptroller in order to obtain credit. The comptroller will notify the distributor of the amount of stamp credit authorized.
   2. (2) Disallowance of credit for cigarette tax stamps. The comptroller will not authorize credit for stamps lost due to theft, negligence, or any unaccountable loss or for stamps that have been affixed two or more times to the same package of cigarettes resulting in double stamping.
4. (d) Cigarette tax stamp payments. All persons who purchase cigarette tax stamps from the comptroller shall transfer payments by electronic funds transfer.

5. (e) Evidence of return of cigarettes unfit for use. A distributor who requests replacement of cigarette tax stamps affixed to cigarettes that have been returned to the manufacturer must submit the following documentation to the comptroller:

   1. (1) a credit memorandum from the manufacturer to whom the cigarettes were returned, verifying the number of cigarettes returned for credit;
   2. (2) an affidavit from the manufacturer confirming that the tax stamps affixed to the cigarettes listed in the memorandum have been destroyed and listing the number, denomination, and the value of such stamps; and
   3. (3) an affidavit from the distributor stating that the distributor returned the number of cigarettes listed in the manufacturer's credit memorandum and that the number, denomination, and the value of state cigarette tax stamps shown in the manufacturer's affidavit were affixed to the cigarettes returned.

6. (f) Delivery of unstamped cigarettes to instrumentalities of the United States government.

   1. (1) Distributors may use their own vehicles to deliver previously invoiced quantities of unstamped cigarettes to instrumentalities of the United States government. These tax-free cigarettes must be packaged in a manner that prevents the unstamped cigarettes from commingling with any other cigarettes in the distributor's vehicle.
   2. (2) Each sale of unstamped cigarettes by a distributor to an instrumentality of the United States government shall be supported by a separate sales invoice and a properly completed federal exemption certificate. Sales invoices must be numbered and dated and must show the name of the seller, name of the purchaser, and the destination.

7. (g) Issuance of cigarette tax stamps to the Texas Alcoholic Beverage Commission (TABC).

   1. (1) The comptroller shall sell cigarette tax stamps to the Texas Alcoholic Beverage Commission for the purpose of collecting the cigarette tax at ports of entry into the state.
   2. (2) Payment for the cigarette tax stamps sold will be made by that agency according to the terms and conditions stipulated in the interagency cooperation contract between the comptroller and the Texas Alcoholic Beverage Commission.
8. (h) Affixing of cigarette tax stamps by Texas Alcoholic Beverage Commission agents. Cigarette tax stamps affixed by agents of the Texas Alcoholic Beverage Commission must be affixed to the cellophane wrapper on the bottom of each individual package of cigarettes.

9. (i) Disposition of cigarettes seized by Texas Alcoholic Beverage Commission agents.

   1. (1) Texas Alcoholic Beverage Commission agents shall seize all cigarettes for which the holder refuses to pay the tax imposed by Tax Code, §154.021.
   2. (2) Cigarettes seized shall be released to agents of the comptroller for ultimate disposition.

10. (j) Importation of 200 or fewer cigarettes.

    1. (1) A person 18 years of age or older, or a person younger than 18 years when the individual possesses the cigarettes in the presence of an adult parent, a guardian, or a spouse of the individual, who imports and personally transports 200 or fewer cigarettes into this state from another state, for personal use and not for sale is not required to pay the tax imposed by Tax Code, §154.021.
    2. (2) Texas Alcoholic Beverage Commission employees shall collect the tax imposed by Tax Code, §154.021, at ports of entry from each person who imports and personally transports more than 200 cigarettes into this state from another state and who is at least 18 years of age or who is younger than 18 and possesses the cigarettes in the presence of an adult parent, a guardian, or a spouse of the individual.
    3. (3) A person younger than 18 years of age may not import and personally transport cigarettes of any quantity into this state, except in the presence of an adult parent, a guardian, or a spouse of the individual.
    4. (4) Texas Alcoholic Beverage Commission employees shall seize at ports of entry all cigarettes in the possession of a person younger than 18 years of age, except in situations where paragraph (3) of this subsection applies.

Source Note:The provisions of this §3.101 adopted to be effective June 5, 2003, 28 TexReg 4308.