Electronic Filing in Tobacco Tax
The tobacco industry has long been a cornerstone of the global economy, but like many sectors, it has had to adapt to the digital age. One significant shift that tobacco companies are experiencing is the transition from traditional paper-based filing systems to electronic filing.
Current landscape of e-filing in tobacco
While tobacco compliance is constantly shifting and changing, the trend toward e-filing is continuously inching closer. 20 states have mandated e-filing for tax return filing in the tobacco industry According to FTA’s documentation, as of August 2022. 15 states now also offer e-filing as an option for reporting. Below is a list of states that require e-filing for tax return filing and additional information on how to file.
| State | Tax Return E-Filing Required | Additional Information |
|---|---|---|
| Alabama | yes | Returns must be filed electronically through our portal My Alabama Taxes (MAT). |
| Alaska | yes | Electronic filing is required through the Tax Division’s online tax portal Revenue Online. Waivers from the online filing requirement are available. |
| Arizona | yes | Arizona law requires all returns to be filed electronically. |
| Arkansas | ||
| California | yes | Starting January 1, 2022, all returns/reports must be filed online using our Online Services system. |
| Colorado | yes | Cigarette, nicotine and tobacco products tax returns must be filed electronically through the Department’s online filing system, Revenue Online. |
| Connecticut | optional | Paper returns are required for both cigarette and OTP taxes. Beginning September 13, 2021, returns can be filed electronically for both cigarettes and OTP. |
| Delaware | ||
| District of Columbia | yes | Effective October 2018, taxpayers manually filed returns are not accepted. |
| Florida | ||
| Georgia | yes | All tax returns are filed electronically through our Georgia Tax Center website. |
| Hawaii | yes | For taxable years beginning on or after September 1, 2019, cigarette and tobacco tax returns are required to be filed electronically. The Department will impose a 2% penalty on the amount of tax shown on the return if not filed electronically |
| Idaho | no | Cigarette and tobacco tax returns are filed in paper form. Taxpayers can submit electronic files of PACT Act reports via email to: [email protected]. |
| Illinois | depends – see additional information | Electronic filing is available for all returns except the RC-55: Unstamped Little Cigar Sticks Tax Return. Most returns can still be filed by paper (does not include the Tobacco Products Return: TP-1) MyTax Illinois or 3rd party software. Companies with over 30 transactions per month are required to file electronically. Effective August 1, 2018, the TP-1 return is mandatory electronic filing. |
| Indiana | yes | Electronic filing information is available here |
| Iowa | no | Returns must be submitted by mail. Payment must be included if tax is due. |
| Kansas | optional | All reports shall be made on forms provided by the director. Electronic filing is available through our web site. Specifications on the web site must be followed. Mandatory electronic reporting is expected soon. |
| Kentucky | yes | Kentucky only accepts electronic returns/reports and payments filed electronically through the KY Electronic Tobacco Filing System (KyETS). |
| Louisiana | yes | Tobacco returns are required to be filed and paid electronically. Cigarette tax stamp orders and payments must be made electronically. |
| Maine | depends – see additional information | Currently returns can only be filed via paper. Tobacco Return Schedules are filed electronically, submitted via email to [email protected]. |
| Maryland | No | OTP/ENDS – No option for electronic filing. Taxpayer prints form and mails to office. Cigarettes – No option for electronic filing. Taxpayer prints form and mails to office. |
| Massachusetts | yes | Taxpayers are mandated to file electronically on DOR’s Masstax connect system. |
| Michigan | yes | Electronic filing only. Taxpayers have the choice of a Web Direct, XML schema, or an Excel spreadsheet. |
| Minnesota | optional | Returns may be filed paper or electronically. There is a manual entry or a schema for filing electronically. |
| Mississippi | yes | All returns are filed electronically through our tax system called TAP (Taxpayer Access Portal). Taxpayers are required to set up an account, add access to the Tobacco tax type, and file the returns monthly |
| Missouri | no | Tax returns are filed on paper; there is no option for electronic filing. |
| Montana | optional | Montana offers both papers filing and electronic filing. We’ve encouraged all of our wholesalers to file their returns online. |
| Nebraska | depends – see additional information | Cigarette – returns are required to be filed electronically in XML format. Tobacco Products – returns are filed on paper. |
| Nevada | optional | Standard Cigarette Inventory report can be filed electronically via email to [email protected] and [email protected], via fax or via postal mail in PDF format. The Electronic Cigarette Inventory Report can only be filed electronically via email. |
| New Hampshire | optional | Tobacco returns must be mailed into the department. As of August 9, 2021 the Department has the option to file Tobacco returns electronically through an external web portal, called Granite Tax Connect (GTC). |
| New Jersey | depends – see additional information | All of the Cigarette and Tobacco Tax returns are paper returns that must be mailed in. The Vapor Business Tax Return, VB-100, is filed electronically on our website. |
| New Mexico | yes | As of March 2018, distributors are required to file electronically |
| New York | optional | There is no option for electronic filing of cigarette agent inventory reports. Cigarette wholesale dealers are encouraged to file their information returns through a Business Online Services account. See Online Services for Businesses for additional information. However, wholesale dealers who do not keep their records electronically may file a paper return. There is no option to file Tobacco products tax returns electronically. |
| North Carolina | no | No option for electronic filing. |
| North Dakota | optional | Returns can be submitted electronically through Taxpayer Access Point (TAP). TAP allows for data to be manually entered or be imported through an Excel template. In addition to electronic filing, returns may also be filed on a paper return along with supporting schedules. |
| Ohio | yes | Electronic filing is required. |
| Oklahoma | yes | Wholesalers are required to file electronically; they file on the OkTAP Gentax system. |
| Oregon | optional | We have electronic and paper filing methods available. Electronic filing is completed via the department’s secure taxpayer portal, Revenue Online. Paper returns can be downloaded from the department’s website and submitted in person or via U.S. mail. |
| Pennsylvania | depends – see additional information | Other Tobacco Products tax returns must be filed electronically. All other OTP and cigarette reports must be filed on paper. OTP taxpayers visit e-TIDES, Pennsylvania’s free electronic filing system. |
| Rhode Island | no | All returns are currently required to be filed by paper. |
| South Carolina | optional | South Carolina accepts mailed and electronically filed returns and payments. They can file on the MY DORWay Gentax system. |
| South Dakota | optional | South Dakota has an electronic filing system. It is not required. |
| Tennessee | yes | Tobacco Tax Returns, Licensed Distributor Reports (LDRs), and Retail Accountability Program (RAP) Reports must be filed on our self-service tax filing website called, Tennessee Taxpayer Access Point. |
| Texas | no | To date, a paper return is the only method available to file. |
| Utah | yes | Returns are filed electronically. |
| Vermont | optional | Cigarette and tobacco taxes are filed electronically through myVTAX, paper returns are also accepted. |
| Virginia | depends – see additional information | Cigarette forms are filed on paper. OTP returns are filed electronically. |
| Washington | optional | Paper or electronic filings are available at dor.wa.gov. |
| West Virginia | optional | Tax returns can be filed by mail or electronically through MyTaxes. |
| Wisconsin | yes | Electronic filing is required. Returns can be submitted via xml files or through My Tax Account. |
| Wyoming | optional | Wyoming accepts paper and electronic returns. |
Kansas specifically stated in Section 11 that “Mandatory electronic filing is expected soon,” giving their licensed taxpayers a heads up to start thinking through how they will convert to electronic filing if they haven’t already. The transition can feel daunting. Below we discuss the challenges of transitioning to e-filing in tobacco.
Challenges of transitioning to e-file
For decades, tobacco filing was done with pen and paper. You would fill in a few blank lines and send your filing in a stamped envelope to the jurisdiction. Those simpler days are quickly fading as the government demands to see more data and for that information to be sent digitally. A once two-page report can now be in the hundreds. This can be alarming and feel like a massive undertaking. Here are some common challenges tobacco companies face when transitioning to e-filing.
Inconsistency Between States
E-filing in Tobacco is anything but straightforward. Requirements are not standardized across states for e-filing, making it challenging to ensure compliance across multiple jurisdictions. Some states require you to upload an XML via a website, while others want you to email CSV files.
To make this more complicated, some states require different filing for different products. For example, Nebraska requires cigarette returns to be filed electronically in an XML format but requires tobacco product returns to be filed on paper.
Another inconsistency you need to be aware of is naming conventions and data field variations. For example, some states might not allow a period in a city name, while others do. So, St. Edwards would get rejected by some states and accepted by others. Some states may limit a carrier to 35 characters, whereas others don’t. All these constantly changing factors can make compliance hard to stay on top of.
Building Report Infrastructure
Tax teams are masters of spreadsheets, but building data reports to export for jurisdictions, is anything but easy. Existing tobacco businesses often have legacy systems that are not easily compatible with e-filing formats. Taking data and transforming it into exactly what the jurisdiction needs can be complex and costly.
Tax teams often need to get their IT team involved or have to outsource a developer to build the reporting process that meets their needs. This is a BIG lift. It can take 200-500 hours to build out and program just one state.
The Grace Period is Over
States feel like they have given adequate time to switch to electronic filing. So, if you are not prepared to e-file, you will be met with penalties. In Hawaii, the Department will impose a 2% penalty on the amount of tax shown on the return if it is not filed electronically.
Don’t leave finding a solution for the last minute. There is expected to be a swell of demand for solutions as states continue to push for electronic filing. If you haven’t started, now is the time to begin your transition process.
Ways to transition to e-filing in tobacco
Transitioning to e-filing in the tobacco industry requires careful planning and execution. Here are some steps and strategies to consider when making the transition.
Assess Current Processes
Begin by conducting a comprehensive assessment of your current filing processes. Understand the documents and data that must be filed for different products across your business. Compare your current processes to what your jurisdiction requires for e-filing. Take note of the gaps in processes and changes you would need to make to remain compliant.
Set Clear and Attainable Goals with Stakeholders
Establish a timeline with clear steps and objectives for transitioning to electronic filing. Make sure to include key stakeholders in the goal planning and implementation process. This could include your tax team, IT team, and CFO.
Automate your Compliance Process
Tax teams are finding an effective solution for e-filing by digitally transforming their tax compliance process through automation. Preparing data, reconciling, calculating taxes, and reporting and filing can be done in a fraction of the time with increased accuracy. Imagine going to submit your electronic file by just pushing a button. One singular click. Solutions like this exist, even for highly regulated industries.
ComplyIQ is an excellent example of software that has solutions built out for the tobacco, vapor, and fuel industries. They keep tabs on changes to jurisdiction requirements for clients, so when it is time to file electronically, all you have to do is click a button and move on with your day. Tax teams can finally clock out knowing their tax returns have been filed correctly and timely.
3 takeaways for e-filing in tobacco
Throughout this blog, we briefly covered the current landscape of e-filing in tobacco, the challenges accompanying electronic filing, and ways to transition. Below are some nuggets of information to take to your team during your next meeting.
- Mandated nationwide electronic Filing is the (very near) future
- Transitioning to e-filing is incredibly complicated and granular
- There are solutions available that will effortlessly digitally transform your tax compliance process
You shouldn’t be expected to face these challenges alone. Talk with an expert about the complexities of e-filing and appropriate solutions for your business.
This analysis is intended for informational purposes only and is not tax advice. For tax advice, consult your tax adviser. See the full disclaimer here.
Nick Milledge
VP of Revenue