The Department has issued updated guidance addressing remote sellers’ cigarette and tobacco tax responsibilities after the Minnesota Legislature’s mid-2021 amendments to the State’s cigarette and tobacco tax and tobacco product delivery sales statutes, Congress’ late-2020 amendment of the Jenkins Act, and a 2018 decision of the U.S. Supreme Court on permissible state taxation of remote sales.

On May 9, 2022, the Minnesota Department of Revenue (the “Department”) issued Revenue Notice # 22‑02 on remote sellers’ tax payment responsibilities under the State’s cigarette and tobacco tax and tobacco product delivery sales statutes. The notice applies to all delivery sales after December 31, 2021, and it revokes and replaces the Department’s earlier notice on these subjects.

The Revoked 2020 Notice

The revoked notice – Revenue Notice # 20-03 – was issued on October 12, 2020. It addressed the statutory responsibilities of remote tobacco product sellers in light of the U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc. That decision stands for the proposition that the Commerce Clause of the U.S. Constitution does not limit a state to taxing sellers physically present within its boundaries. The Court held that a South Dakota law was constitutional insofar as it taxed remote sellers who, in the current or previous calendar year, had sales into the State either exceeding $100,000 in gross revenue or totaling 200 or more separate transactions.

Preexisting Minnesota cigarette and tobacco tax and tobacco product delivery sales statutes imposed various obligations on remote sellers. Among these, the tobacco product delivery sales statute required remote sellers of cigarettes, smokeless tobacco, or premium cigars to “ensure that all state excise taxes and fees that apply to such tobacco products have been collected and paid to the state” before shipping them to Minnesota customers.

That statute did not reference Wayfair-style sales or transaction thresholds. However, the Department advised that this statutory tax payment obligation would be “triggered by meeting Wayfair sales thresholds,” with the qualification that the Department would consider remote sales “during the prior 12-month period” rather than the current or previous calendar year as in the South Dakota statute at issue in Wayfair. Remote tobacco product sellers would have to register with the Department before making any such sales into the State, regardless of the Wayfair thresholds.

The Department’s notice also detailed related procedures and provided illustrative examples and explanations.

The Replacement 2022 Notice

The new notice appears to have been motivated by Congress’ late-2020 amendment of the federal Jenkins Act and the Minnesota Legislature’s mid-2021 amendment of the State’s cigarette and tobacco tax and tobacco product delivery sales statutes.

The Jenkins Act requires remote sellers of certain tobacco products to register and report with states and take (or refrain from) various other actions with respect to their delivery sales. The Jenkins Act had applied only to transactions involving cigarettes, roll-your-own tobacco, or smokeless tobacco until – effective March 28, 2021 – Congress extended it to electronic nicotine delivery systems as well.

Among other things, the new Minnesota law expanded remote sellers’ obligations under the tobacco product delivery sales statute – beyond merely cigarettes, smokeless tobacco, and premium cigars – to cover a broad class of statutorily-defined “tobacco products” and added a provision to the cigarette and tobacco tax statutes to require that remote sellers “collect and pay to the state any use tax imposed” under the statute and “give the purchaser a receipt for the tax paid.” The similar tax payment obligation under the tobacco product delivery sales statute was reworded, but retained. These and most of the Legislature’s other amendments to the cigarette and tobacco tax and tobacco product delivery sales statutes went into effect January 1, 2022, or “for all delivery sales occurring after December 31, 2021.”

On their face, these amendments did not incorporate Wayfair-style thresholds. Still, the Department’s 2022 notice stated, “For out-of-state tobacco delivery sellers that make delivery sales to Minnesota consumers and have no physical presence in Minnesota, the Department is applying sales thresholds to the collection and payment requirements that are consistent with the U.S. Supreme Court’s decision in [Wayfair]. This application of Wayfair sales thresholds is for administrative purposes.” For purposes of applying the Wayfair threshold, the Department continues to consider remote sales “during the prior 12-month period.”

The Department’s 2022 notice also revised and expanded upon the related procedures detailed in the 2020 notice. Notably, according to the Department, all remote sellers of tobacco products must register with the Department before making any remote sales to Minnesota customers, regardless of the Wayfair thresholds. And a Minnesota customer might be liable for the taxes if purchasing tobacco products from a remote seller lacking a physical presence in the State and falling short of the Wayfair thresholds.

The remote sale of tobacco products continues to be an area of interest to lawmakers and state taxing authorities, with examples including the Department’s successive notices and the intervening enactments of Congress and the Minnesota Legislature. Notably, unlike sales and use tax laws, there has not been a concerted effort to incorporate Wayfair-style thresholds into state tobacco licensing or excise tax laws, which raises issues as to whether out-of-state delivery sellers may be constitutionally required to comply with those laws. As observed on this blog regarding the enactment of a remote tobacco sale law earlier this year, “Whether and how Congress and State legislatures continue to enact or amend laws regarding delivery sales of tobacco products will, of course, continue to be significant matters for delivery sellers to follow.” As the Department’s successive revenue notices illustrate, remote sellers will also want to consider administrative guidance on these subjects. While administrative guidance does not bear the same weight as statutes or regulations, they represent an agency’s position on a particular matter.