Everyone needs to understand how tobacco taxes are assessed, collected and reported, so we answered our most frequently asked questions in regards to state tobacco taxes. Every state has a unique tax rate, method of calculation, and reporting requirements, so we highly recommend doing your due diligence to make sure you are in compliance. When you buy from Hookah Wholesalers, you can be sure that we take care of your taxes and filings on time and by the book. We discussed some of the pitfalls of working with sketchy suppliers in a previous article about tax-free shisha suppliers. Are you up to date on your state's requirements?
Our Most Frequently Asked Tobacco Tax Questions
Is this a sales tax? Why am I not tax exempt?
State tobacco taxes are not the same as a sales tax. When you operate a retail business, you are exempt from sales taxes, however all states impose a specific tax for wholesale tobacco products. When you sell the shisha tobacco, you need to collect sales tax, just like any other product and report those in your sales tax filings.
How is hookah tobacco classified for tax purposes?
Hookah tobacco is classified as an OTP (Other Tobacco Product) in just about every state and is not taxed as the same rate as cigarettes or cigars.
Do I have to pay the taxes?
Yes, you are required to pay these taxes. There is no escape! Depending on your state, you might be required to buy from a licensed wholesaler or obtain a special permit to pay them on your own. Every state is different, so check with your state tax office for the requirements in your state. Whether we pay them or you opt to report them on your own, the state wants their tax revenue and will eventually come looking for it!
What tobacco permits do I need?
Every state has different requirements for retailers. Some states require a retailer to have a tobacco permit, other states require retailers to buy from a licensed wholesaler. Other state have some combination of both or different requirements depending on who pays the taxes. Search online to find out which department oversees tobacco taxes in your state. When you ask the employees at the tax office, get everything in writing and approved by a supervisor. In our experience, the employees at the tax office do not know what hookahs or shisha tobacco are and will often give out incorrect information. We even have to educate the tax auditors from time to time who don't know what they are auditing!
Why should I buy shisha with tobacco taxes paid?
When you buy from Hookah Wholesalers with the state tobacco taxes paid, there are 3 huge benefits for your business.
- Most businesses will pay lower taxes. When we pay the taxes on your behalf, we can calculate the tobacco taxes based on the manufacturer's cost. If you purchase tobacco with taxes unpaid, you are required to pay the tax rate based on your invoice price.
- It saves you time and money. If you decide to pay the taxes on your own, not only are you required to pay higher taxes, but you might have to pay your accountant to file the taxes for you. Then take into account the time spent and liability of reporting on your own. That's a lot of extra time, effort, and stress that can easily be avoided. Let us worry about the taxes so you can focus on making more money.
- Hookah Wholesalers protects you in the event of an audit. When the state tax auditor visits your store, you can quickly show them our invoices with the state taxes paid. If there are any questions or discrepancies, Hookah Wholesalers will work directly with the tax agent or auditor to supply any additional paperwork or proof of tax filings.
How much are the taxes? How are the taxes calculated?
There are few different ways taxes are calculated and they vary by state. Most states calculate tobacco taxes based on a percentage of the cost of the product. These rates vary in every state and range as low as 10% all the way up to 95%. Texas, Pennsylvania, Arizona and Alabama calculate the tobacco taxes based on the weight of the product and asses they tax value by the ounce. Washington, New Mexico and Kentucky assess the tobacco taxes based on the invoice price of the tobacco.
Why aren't taxes included in the sale price?
We display taxes separately so it's easy to see how much tax you are paying, and you can price your products appropriately. It also makes it transparent what the tax rates are and account for the amount of taxes we pay to the state. Since we sell to customers in all 50 states, we display the base price of our tobacco products, then show the applicable tax rate based on your business location.
Can you sell to me un-taxed? Can I pay my own taxes?
Maybe, but maybe not. If you decide to take on the extra burden and cost of reporting the taxes on your own, you might need special permits or distributor licenses. Every state has different rules and regulations in regards to retailers paying their own state taxes. You should contact your state tax office to find out what the requirements are in your area. As a licensed wholesaler, we operate strictly within the rules and regulations of all 50 states and highly recommend that our customers do the same.
Why do distributors sell to me un-taxed?
Unfortunately, there are a lot of wholesalers in the hookah industry that sell tobacco products across state lines and in some cases within their own state without charging the customer tobacco taxes. Customers often times assume that they are paying taxes and just found a cheaper supplier, only to get audited and find out they owe thousands of dollars in back taxes, penalties and interest. These types of distributors are notorious for dumping all the liability on their customers and getting off without any repercussions.
What happens if I buy un-taxed tobacco?
Most often, untaxed tobacco comes from distributors that are located outside of your state. The tax auditor has no jurisdiction over the distributor and all the penalties and fines are assessed on the retailer. If you have purchased untaxed tobacco, you are liable for the taxes on all of your invoices. If the distributor gets audited and does not pay taxes, his customer list goes out to all the tax offices of their customers states and will often times prompt an audit for their entire customer list. If you are audited, you will get a big tax bill as well as penalties, fees and interest.
How do I know if my other supplier is paying my taxes?
You need to ask your supplier if they are paying the state tobacco taxes. If they are, their invoices should include a clear statement that all state tobacco taxes are being paid in your state. If the prices you are paying are too good to be true, you should ask for a copy of their wholesale tobacco license and call the state tax office to verify that they are paying the taxes. Unfortunately, we hear from many customers each year that they were told the taxes were included, only to find out the supplier had never paid the taxes and they owed a substantial amount of money and in many cases had their inventory seized.
If I am shipping internationally, do I need to pay taxes?
If you are an international customer and use a domestic logistics company or have a local address that we ship to, the website will still display the taxes for that state. After you submit the order, the tobacco taxes will be removed before we finalize the order and arrange payment.
Where does HW carry the wholesale tobacco license?
Hookah Wholesalers is a licensed wholesale hookah tobacco distributor in 49 states (Sorry Arkansas!) as well as the District of Columbia. We collect and file the taxes on your behalf. We guarantee the accuracy of our taxes and will help you in the event of a state tobacco tax audit. If you have any questions or concerns regarding hookah tobacco taxes, please contact us.