Texas Cigarette and Tobacco Tax Smuggling

Texas Cigarette and Tobacco Tax Smuggling

Smuggling cigarettes into Texas has become a serious problem as taxes are increasing and business owners are looking for ways to maximize their products. However, this business plan is not one to implement. We have seen many business owners being audited by the Comptroller. The agents come unannounced and check through your place of business behind the doors and even above the ceiling tiles. You are then assessed a civil penalty on a per pack basis. The lowest penalty we have seen is about $80,000.00.

November 4, 2015

Johnathan D. Gwyn, 42, of Kingwood, pleaded guilty to the Class A misdemeanor offense of selling unstamped cigarettes. He was sentenced to serve 2 days in the county jail. Gwyn’s case, filed as cause number 205518901010, was prosecuted in Harris County.

Don’t let this be you.

Tax Crimes

Cigarette and tobacco taxes are set by the Legislature and collected by the Comptroller of Public Accounts. Cigarette tax crimes are described in Texas Tax Code Chapter 154, Subchapter I.These statutes define prohibited conduct for individuals and businesses participating in the cigarette industry, and apply to those with state permits as well as illegal participants.

Cigar and tobacco tax crimes are described in Tax Code Chapter 155, Subchapter G and, again, apply both to those with permits and those operating illegally.

Texas law defines both felony and misdemeanor crimes relating to these products. Felony crimes range up to second-degree felonies (punishable by two to 20 years in prison and a fine of up to $10,000). These offenses include:

• Counterfeiting Tax Stamps (§154.520), a second-degree felony. Because the vast majority of Texas cigarette tax revenue is derived from the sale of cigarette tax stamps, which are affixed to cigarette packs to show the tax has been paid, counterfeit stamps pose a significant threat to this tax;

• Refusing to Permit Inspection by the Comptroller (§154.512 and§155.210), a third-degree felony. The Comptroller has administrative search authority under Chapters 154 and 155 to inspect the premises and records of locations listed in this statute;

• Offenses Related to Books and Records (§154.516 and §155.212), a third-degree felony. These crimes include knowingly making false returns, destroying records or failing to keep records for the required period of time; and

• Possession when Tax Due is over $50 (§155.211), a third-degree felony. This penalizes the possession of a taxable product on which tax amounting to more than $50 has not been paid.
Other Consequences in Addition to Criminal Punishment

• A person can be required to reimburse the state for the costs of the criminal investigation as an additional penalty (see §154.301 and§155.181).

• A person who sold unstamped cigarettes may be ordered to pay double the amount of stamp tax due (see §154.302).

• A person who sold tobacco products untaxed may be ordered to pay double the amount of tax due (see §155.182).

• The Comptroller may deny, suspend or revoke permits relating to cigarette and tobacco products (those issued under Chapter 154 or 155) if the applicant or permit holder has violated a provision of the chapter relating to the permit. Under some circumstances, this may occur without a prior hearing (see §154.1141 and §155.0591).
Venue of Case Prosecutions

Although criminal cases normally are prosecuted in the county where the offense occurred, some special rules pertain to tobacco products crimes.

• Counterfeit tax stamp cases are prosecuted in Travis County (see§154.520