Tobacco Tax Manual

Tobacco Tax Manual June 2026

June 2026 2 | Page Contents

1. Directory of Approved Tobacco Product Manufacturers..............................................7
2. Licensed Distributor Report ("LDR")...............................................................................12
3. Prevent All Cigarette Trafficking (PACT) Act ..................................................................13
4. Retail Accountability Program (RAP) ..............................................................................15
5. Minimum Cigarette Selling Price ....................................................................................17
6. Tobacco Tax Stamp Affixing Agent.................................................................................18
7. Credit for Damaged Tobacco Stamps............................................................................18

June 2026 3 | Page Tobacco Tax History and Tax Rates Tobacco taxes were first enacted in Tennessee in 1925 as a two-year emergency measure to provide additional revenue for public schools and to make possible reductions in the state property tax. The tax was levied on the privilege of selling tobacco products at a rate of 10% of the retail sales price. In 1927, the legislature made the tobacco tax permanent and set the rate for cigarettes at 2¢ per package, while the rate for other tobacco products remained unchanged. In subsequent years, extensive legislation has both increased the tax rate and provided the responsible agencies with greater enforcement powers to allow more efficient tax administration. In 1937, the cigarette tax rate was increased to 3¢ per package. The rate on snuff was reduced to 5% of the retail price, and cigars were taxed anywhere from $1.00 to $13.50, depending on the retail price. The cigarette tax was increased to 5¢ per package in 1951. The rate on manufactured tobacco and snuff was changed to 6% of wholesale cost price in 1965 . The cigarette tax rate was increased to 8¢ per package in 1967 and to 13¢ per package in

1. Effective July 1, 1972, the tax rate on all other tobacco products was changed to 6% of the wholesale cost price.

Effective July 1, 1972, the tax on cigars was changed from the 13¢ stamps to 6% of the wholesale cost price. In 1985, an additional tax of 0.05% per pack was added but did not affect the stamp tax. Effective July 15, 2002, the cigarette tax was increased to 20¢ per pack of 20, and the tax on other tobacco products was increased to 6.6% of the wholesale cost price. Effective July 1, 2007, the cigarette tax was increased to 62¢ per pack of 20, and 77 ½¢ per pack of 25. As of January 1, 2017, the 77 ½¢ stamps for 25-stick packs have been recalled and are no longer offered by the Department. Effective July 1, 2025, vapor products (e.g., electronic cigarettes, electronic pipes, and consumable materials used with these products) have been added to the statutory definition of tobacco products and are subject to tax at the rate of 10% of the wholesale cost price. The tobacco tax laws can be found in Tenn. Code Ann. § 67-4-1001 through § 67-4-1033 and Tenn. Code Ann. § 67-4-2601 through § 67-4-2610. The rules and regulations can be found at TENN. COMP. R. & REGS. 1320-04-03-.01 through 1320-04-03-.13.

June 2026 4 | Page Overview The tobacco tax is a state tax that is imposed on every dealer or distributor of tobacco products for the privilege of selling cigarettes and tobacco products in this stat e.2 The tobacco tax revenue collected by the state funds public education. 3 All dealers or distributors making wholesale sales of cigarettes and other tobacco products in Tennessee must be licensed and remit on a monthly basis the tobacco tax due by filing the Tennessee Tobacco Products Return. Although the tobacco tax is remitted by the dealer/distributor to the Department, the tax is ultimately a levy on the consumer. The tobacco dealer/distributor (the taxpayer) will recoup the taxes remitted by adding the amount of tobacco taxes levied to the price of cigarettes or other tobacco products sold.4 Generally, the tobacco tax on cigarettes (including little cigars) is remitted by purchasing Tennessee tobacco tax stamps from the Department and affixing such stamp to each pack of cigarettes, which indicates the tobacco tax has been paid. For all other tobacco products, the tax is remitted with the monthly tobacco tax return. The taxpayer will reconcile the disposition of its unstamped packs of cigarettes with the disposition of Tennessee tobacco tax stamps for the monthly reporting period on the tobacco tax return. If the taxpayer sells, distributes, or handles cigarettes or other tobacco products at the wholesale level (i.e., not as a retailer selling to the consumer), regardless of whether the taxpayer is subject to the tobacco tax, the taxpayer must obtain the appropriate license from Tennessee. The license expires on May 31 of each year and must be renewed prior to that date. The taxpayer should register with the Department electronically through TNTAP by selecting "Register a New Business," selecting "tobacco tax," then answering the related questions. The following is a list of licenses, along with accompanying fees, that are available in Tennessee:5  Manufacturing Distributor - $200 per plant or processing location  Tobacco Manufacturer's Warehouse - $200 per storage warehouse  Wholesale Dealer & Jobber - $200 per separate sale warehouse  Tobacco Distributor - $100 per secondary wholesale location  Cigarette Rolling Machine Operator - $500 per machine

June 2026 5 | Page Tobacco Tax Administration

1. Tobacco Products Tax

If the taxpayer purchases unstamped cigarettes, little cigars or untaxed tobacco products including, but not limited to, cigars, manufactured tobacco, snuff, or vapor products, then the taxpayer is subject to Tennessee's tobacco products tax. The tax is most often paid by the wholesaler. Some manufacturers may choose to pay the tax instead, but generally they do not. Tobacco Product Type Tax Rate Cigarettes6 $0.62 per pack of 20 cigarettes Other Tobacco Products7 6.6% of the wholesale cost Vapor Products8 10% of the wholesale cost This tax does not apply to tobacco that is produced and processed by the grower for the grower's own use and not held for sale. Vapor Products Effective July 1, 2025, vapor products are subject to the tobacco tax at the rate of 10% of the wholesale cost price. Persons making wholesale sales of vapor products in Tennessee must report these sales and remit the tax due by filing a monthly Tennessee Tobacco Products Return (Form TOB 552). "Vapor product"9 means a noncombustible product containing consumable material, 10 that employs a mechanical heating element, battery, electronic circuit, or other mechanism, regardless of shape or size, that can be used to produce or emit a visible or non -visible vapor. Taxable vapor products include:  electronic cigarettes  electronic cigars  electronic cigarillos  electronic pipes, or similar products; and

June 2026 6 | Page  any vapor cartridges containing consumable material, or  other containers of consumable material that are intended to be used with or in any product listed above. Vapor products do not include products regulated under Chapter V of the Food, Drug, and Cosmetic Act (21 U.S.C. § 351 et seq.). Also, open-system vapor products11 that do not contain consumable material (i.e., empty equipment) are not subject to the 10% wholesale tax. Retailers Retailers are the only entities permitted to sell tobacco products directly to the consumer. Retailers may only sell cigarettes (including little cigars and roll-your-own cigarettes) and vapor products on which the tobacco tax has been paid by a licensed Tennessee wholesaler. In addition, retailers may only sell tobacco products that are listed on Tennessee's Directory of Approved Tobacco Product Manufacturers and for cigarettes (including little cigars and roll-your-own cigarettes), have been certified as fire-safe compliant. Retailers selling tobacco products in this state must register for sales and use tax and submit monthly returns to the Department. Retailers and consumers purchasing untaxed tobacco products from out-of-state are required to pay the tax on such products. Retailers are allowed to purchase other tobacco products ("OTP"), which include smokeless tobacco, pipe tobacco, and cigars, and remit the tax on such products themselves; this excludes cigarettes, little cigars, and roll-your-own cigarettes ("RYO") and vapor products. Retailers must purchase cigarettes, little cigars, and RYO and vapor products from a Tennessee licensed wholesaler that has paid the tax on these products.13 Retailers who are in possession of unstamped tobacco products that are required to have Tennessee tobacco tax stamps affixed, such as cigarettes and little cigars, are considered to be in possession of contraband goods that may be seized by the Department. 14 Retailers who are unlawfully in possession of cigarettes or other tobacco products are liable, at the Commissioner's discretion, for a penalty of $25 for each individual box or carton of cigarettes and $50 for each individual box or carton of other tobacco products unlawfully possessed by the retailer.

June 2026 7 | Page Retailers pay the tobacco tax on untaxed OTP they have purchased by doing the following:  Register in TNTAP for a tobacco tax account;  Maintain books and records accounting for all untaxed tobacco products (other than cigarettes) they purchase or receive; and  Report monthly the receipt of untaxed tobacco products (other than cigarettes) by completing Schedule D of the Tennessee Tobacco Products Return and remitting the tax to the Department based on the purchase price of such produc ts.

1. Directory of Approved Tobacco Product Manufacturers

State law requires the Department maintain a directory listing all tobacco product manufacturers and respective brands that are eligible to be sold in the state. Tobacco product manufacturers included in the directory have provided certifications showing t hey meet current legal requirements. The directory is updated as necessary to add and remove tobacco product manufacturers or brand families. It is illegal to stamp a package of cigarettes, or pay the tax on roll-your-own tobacco, from a tobacco product manufacturer or brand family that is not listed in the directory. It is also illegal to sell, offer, or possess for sale or personal consumption, cigarettes or roll-your-own tobacco of a tobacco product manufacturer or brand family that is not listed in the directory. The Directory is available on the Department's website.

1. Vapor Product Directory

By August 1, 2025, and annually thereafter, each manufacturer of a vapor product sold for retail sale in this state, whether directly or through an importer, wholesaler, distributor, retailer, or similar intermediary or intermediaries, must register such product with the Department for inclusion in the Department's vapor product directory. Please note that vapor products required to be registered include cartridges and other containers containing consumable material intended for use with or in an electronic Generally, wholesalers/distributors will note on a purchase invoice whether Tennessee tobacco tax has been paid on the tobacco products purchased by a retailer. If the invoice does not specify this, it is the responsibility of the retailer to ask its vendor if Tennessee tobacco tax has been remitted before purchasing the products from the vendor.

June 2026 8 | Page cigarette. Component materials sold in bulk for use in e-liquids are not required to be listed in the directory. Beginning August 1, 2025, retailers are authorized to purchase vapor products only from licensed distributors or wholesalers of tobacco products. Vapor products must meet specific criteria to be included in the directory:  The manufacturer has received a marketing granted order for the vapor product from the United States Food and Drug Administration (FDA) pursuant to 21 U.S.C. § 387j;  The manufacturer submitted a timely filed premarket tobacco product application 17 for the vapor product to the FDA pursuant to 21 U.S.C. § 387j, and the application either: • Remains under review by the FDA; or • Has received a denial order that has been and remains:  Stayed by the FDA or court order;  Rescinded by the FDA; or  Vacated by a court;  The manufacturer is not required to submit an additional marketing granted order or premarket tobacco product application for the vapor product because the vapor product merely reflects changes to the name, brand style, or packaging of a vapor product that is covered above; or  The consumable material of the vapor product was processed or blended in the United States at an FDA-registered facility and the consumable material of the vapor product did not come from a foreign adversarial country. 18  The following must be indicated on the certificate for each vapor product that is sold in this state:

1. Brand Name
2. Category, such as consumable material, power unit, device, vapor cartridge, pod, or disposable.
3. Product Name; and
4. Flavor

 Each annual certification form must be accompanied by: (1) A copy of: (A) The marketing granted order issued by the FDA pursuant to 21 U.S.C. Section 387j; (B) The acceptance letter issued by the FDA pursuant to 21 U.S.C. §387j for a timely filed premarket tobacco product application; or

June 2026 9 | Page (C) A document issued by the FDA or by a court confirming that the premarket tobacco product application has received a denial order that has been and remains stayed by the FDA or court order, rescinded by the FDA or vacated by a court; and (2) Payment of a fee of twenty-five dollars ($25.00) for each vapor product each time a manufacturer submits an annual certification form for that vapor product.  The information submitted by the manufacturer pursuant to subdivision (d)(1) is confidential and not subject to the open records law compiled in title 10, chapter 7. The manufacturer may redact proprietary information provided under subdivision (d)(1). The department shall not disclose such information, except as required or authorized by law. As used in this subsection (e), "proprietary information" means commercial or financial information that is used either directly or indirectly in the business of any person or company and that gives such person an advantage or an opportunity to obtain an advantage over competitors who do not now or use such information. To the extent that federal law (21 U.S.C. § 387j) is amended, or subsequent regulations or other official federal guidance or formal policy statement is issued, changing compliance requirements or standards for a vapor product to become federally compliant , each manufacturer of a vapor product that is sold for retail sale or to a consumer in this state must submit documentation to the Department substantiating compliance with such new federal requirements or standards within 30 calendar days of the date compliance with such requirement or standard is mandated. Failure to substantiate compliance with new federal requirements or standards is grounds for removal of the manufacturer and its vapor products from the directory. Process for Denying or Removing Noncompliant Products from the Directory As mentioned above, vapor products must meet specific criteria to be included in the directory. If a manufacturer or any of its products do not meet the criteria to be included in This registration requirement does not apply to open-system vapor products that do not contain consumable material (i.e., empty equipment) . The Tenn. Code Ann. § 67-4-1034(d)(1) requirement to provide a marketing granted order from the FDA or an acceptance letter or denial letter from the FDA for a timely filed premarket tobacco product application does not apply to vapor products that are certified under Tenn. Code Ann. § 67-4-1034(b)(4).

June 2026 10 | P ag e the directory or become noncompliant, the manufacturer or its products will be removed from the directory. The Department will notify manufacturers and provide them an opportunity to cure any deficiencies before taking action to remove manufacturers or products from the directory. If the Department declines to include a vapor product or vapor product manufacturer in the directory, then that action is subject to review in the manner provided by Tenn. Code Ann. § 67-1-105 and in accordance with the Uniform Administrative Procedures Act (Tennessee Code Annotated, Title 4, Chapter 5). 20 See the Department's website for additional information about requesting a hearing. A request for hearing must be made within 10 days from the date of the action complained of. The process for removing noncompliant products from the directory is outlined on the following page.21

June 2026 11 | P ag e • Department provides manufacturer with a written notice (via email, fax, or mail) of deficiencies and an opportunity to cure those deficiencies. Step 1 Written Deficiency Notice • Manufacturer has 15 business days from the date of service of the notice to cure the noted deficiencies or otherwise establish that its products should be included in the directory. Step 2 15-day Cure Period for Manufacturer • After 30 business days have passed following the Department's written notice to the manufacturer, the Department will remove deficient products that have not been cured from the directory. Step 3 Removal of Deficient Product after 30 Days • Following the removal of a manufacturer's product(s) from the directory, retailers have 30 days to sell such product(s) that were in the retailer's inventory as of the date of removal. A retailer is not authorized to sell the identified products after this 30-day period. Step 4 30-day Grace Period for Retailers • After 30 calendar days following removal from the directory, the removed products are subject to seizure, forfeiture, and destruction, and may not be purchased or sold for retail sale in this state. No products may be seized from a consumer who has made a bona fide purchase of such product. Step 5 Removed Product is Prohibited

June 2026 12 | P ag e Sales of Vapor Products Not Included in the Directory are Prohibited The Department will publish the vapor product directory on its website by January 1, 2026, and the directory will be updated monthly. Beginning January 1, 2027, vapor products not included in the Department's vapor product directory are prohibited from being sold for retail sale in this state, either directly or through an importer, distributor, wholesaler, retailer, or similar intermediary or intermediaries. Retailers, distributors, and wholesalers will have 60 calendar days following publication of the directory to remove vapor products not listed in the directory from their inventory. After 60 calendar days following publication of the directory, vapor products not listed in the directory and intended for sale in this state are subject to seizure, forfeiture, and destruction, and cannot be purchased or sold for retail sale.

1. Licensed Distributor Report ("LDR")

Due to the states being held to higher standards for diligent enforcement of the Master Settlement Agreement, licensed agents are subject to increased reporting requirements on the licensed distributor report ("LDR"), including stamping activity, inventory, and purchases and sales. The LDR reflects the total number of cigarettes, roll-your-own tobacco, and little cigars in each brand family sold in Tennessee to which state tobacco tax stamps have been affixed and/or tobacco tax has been remitted during the month. Each wholesaler is required to file the report by the 15th day of each month. All invoices and documentation of sales of cigarettes and/or any other information used to complete the LDR are required to be maintained by the wholesaler for a period of seven years. 24 Additional information and resources for filing this report can be found on the Department's website. In-State Wholesaler Reporting Requirements In-state wholesalers must report the following: 25  The number of cigarettes and little cigars that were stamped during the month, including Tennessee stamps and any other tax stamps.  The ounces of roll-your-own tobacco on which tax was paid during the month, including Tennessee tax and tax for other jurisdictions.  Inventory adjustments that may have occurred during the month.  Beginning and ending inventory, purchases, and sales of:

June 2026 13 | P ag e  Tennessee tax stamped Participating Manufacturer ("PM")26 cigarettes and tax paid on PM roll-your-own tobacco.  Tax stamped or tax paid on little cigars for all tax jurisdictions.  Tax stamped Non-participating Manufacturer ("NPM") cigarettes and tax paid on NPM roll-your-own tobacco for all tax jurisdictions.  Unstamped cigarettes, little cigars, and roll-your-own tobacco on which tax has not been paid. Out-of-State Wholesaler Reporting Requirements Out-of-state wholesalers must report the following: 27  The number of cigarettes and little cigars that were stamped during the month, including PM cigarettes and little cigars with Tennessee stamps and NPM cigarettes with any tax stamps.  The ounces of roll-your-own tobacco on which tax was paid during the month, including PM roll-your-own tobacco in Tennessee and NPM roll-your-own tobacco in all tax jurisdictions.  Inventory adjustments that may have occurred during the month.  Beginning and ending inventory, purchases, and sales of:  Tennessee tax stamped cigarettes and little cigars and Tennessee tax paid on roll-your-own tobacco.  Unstamped NPM cigarettes and roll-your-own tobacco on which tax has not been paid in all tax jurisdictions.

1. Prevent All Cigarette Trafficking (PACT) Act

Federal law requires that anyone who ships or transfers cigarettes, roll -your-own tobacco, smokeless tobacco, or electronic nicotine delivery systems from another state into Tennessee must report those products to Tennessee. The taxpayer must complete the For out-of-state wholesalers, NPM cigarettes and NPM roll -your-own products stamped, purchased, sold, or inventoried for use outside Tennessee and not on the Tennessee Directory are not required to be reported on the LDR.

June 2026 14 | P ag e Prevent All Cigarette Trafficking (PACT) Act Tennessee Registration form either online through TNTAP or by completing the paper form and mailing the completed form to the Tennessee Department of Revenue. Note that if the taxpayer is a Tennessee dealer that ships any of the aforementioned products into another state, the taxpayer is required to register the products with that state. Additional information and resources for filing the Tennessee PACT Act Report can be found on the Department's website. Electronic Nicotine Delivery Systems (ENDS) In December of 2020, the federal PACT Act was amended to include reporting requirements for electronic nicotine delivery systems ("ENDS"). ENDS is defined as "any electronic device that, through an aerosolized solution, delivers nicotine, flavor, or any other substance to the user inhaling from the device." ENDS include:  E-cigarettes;  E-hookahs;  E-cigars;  Vape pens;  Advanced refillable personal vaporizers;  Electronic pipes; and  Any component, liquid, part, or accessory of a device described above, without regard to whether the component, liquid, part, or accessory is sold separately from the device.28 Any person who sells, transfers, or ships for profit ENDS in interstate commerce, or who advertises such products for sale, must register with the Department for PACT Act reporting purposes and file monthly PACT Act reports with the Department if the person ships ENDS into the state. Anyone located in Tennessee who only ships ENDS within state lines is not required to file PACT Act reports with the Department regarding these shipments.

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1. Retail Accountability Program (RAP)

Anyone who sells tobacco (including cigarettes, other tobacco products, and vapor products) to Tennessee retailers for resale must report such sales electronically to the Department through the Retail Accountability Program (RAP). The purpose of RAP is to ensure that sales tax is collected from consumers and remitted to the state. RAP requires wholesalers of beer, tobacco products (including cigarettes, other tobacco products, and vapor products), candy, food, and non-alcoholic beverages to file information reports electronically with the Department detailing their sales of such products to Tennessee retailers. For additional information about RAP and the specific reporting requirements of this program, please see the RAP section on the Department's website. You may also find additional information about RAP by accessing RAP articles on the Department's website.

1. Licensing

Tobacco distributors, wholesale dealers & jobbers, manufacturing distributors, tobacco manufacturer warehouses, and cigarette rolling machine operators each must obtain a Tennessee license. A taxpayer must determine its business classification to obtain the appropriate license. In Tennessee, a taxpayer cannot be both a wholesaler/distributor and a retailer of tobacco products.30 However, a manufacturer can also be a wholesaler/distributor in this state by applying for a manufacturing distributor license and remitting the $200 license fee. Licenses expire on May 31 of each year. Taxpayers may apply for a license through TNTAP. Any person who engages in any business or activity for which a tobacco license is required and fails to obtain the appropriate license, or who fails to file an application for renewal of a license before expiration of the current license, is subject to a specific penalty in the amount of the license fee for each month or part of a month during which the activity or failure continues. In addition to this specific penalty, the Commissioner of Revenue may impose a penalty of no more than $250 a day for each day during which the activity or failure occurs or continues. This discretionary penalty may also be imposed upon a person to whom a license has been issued, if the person continues to engage in the business or activity after receiving notice the license is revoked or suspended by the Commissioner. If a taxpayer obtains a distributor or wholesaler license, it cannot also sell to consumers as a retailer.

June 2026 16 | P ag e Manufacturing Distributor License If the taxpayer has a plant located in this state and is engaged in the business of manufacturing or processing consumable tobacco products that are subject to the tobacco tax, the taxpayer must obtain a manufacturing distributor license.32 The fee for this license is $200 per plant or processing location. This license also requires a minimum $2,000 bond. 33 Tobacco Manufacturer's Warehouse License If the taxpayer maintains a warehouse, building, or structure or space therein, whether publicly or privately owned, leased or rented, where any tobacco products are stored as a function of the distribution of such products, but are maintained separate fro m the manufacturer's operation, and where title to and control of distribution of the tobacco products stored therein remain with the manufacturer or processor, the taxpayer must have a tobacco manufacturer's warehouse license. 34 The fee for this license is $200 per storage warehouse. This license also requires a minimum $20,000 bond. 35 Wholesale Dealer and Jobber License If the taxpayer maintains wholesale facilities in one or more permanent locations, is in the business of receiving, storing, purchasing, selling at wholesale, importing unstamped tobacco products (i.e., cigarettes or little cigars), or otherwise handling tobacco products for resale at a wholesale price, and if the taxpayer sells only to other licensed wholesalers and distributors or retailers, but not to the ultimate consumer, the taxpayer must obtain a wholesale dealer and jobber license. 36 The fee for this license is $200 per separate sale warehouse. This license also requires a minimum $2,000 bond. 37 Tobacco Distributor License If the taxpayer receives, purchases, or sells tobacco products as a secondary wholesaler and acquires only pre-stamped cigarettes and/or tobacco products on which the tax has been previously paid, but not sold to the ultimate consumer, the taxpayer must have a tobacco distributor license.38 The fee for this license is $100 per secondary wholesale location. Cigarette Rolling Machine Operator License If a taxpayer purchases or leases for use, or controls, possesses, or maintains, a cigarette rolling machine at a retail establishment that enables any person to process at that establishment tobacco or any product that is made or derived from tobacco into a roll or tube, the taxpayer must have a cigarette rolling machine operator license. The fee for this

June 2026 17 | P ag e license is $500 per machine. A cigarette rolling machine operator is deemed to be a tobacco distributor for tobacco tax purposes.39

1. Minimum Cigarette Selling Price

If the taxpayer sells cigarettes at retail, it must advertise, offer for sale, and sell the cigarettes for at least cost plus a minimum markup amount, which is set by the Unfair Retailer's Cigarette Sales Law.40 Violation of this law is a Class C misdemeanor. As of July 1, 2017, the minimum markup amount is 15% of the basic cost of cigarettes to the retailer .41 Basic cost of cigarettes is defined as the invoice cost of the cigarettes to the retailer before any discounts are applied, plus any taxes, fees, or stamp values that were not included by the manufacturer or wholesaler in the invoice amount. 42 If the taxpayer receives tobacco buydown payments from the manufacturer, it may reduce the selling price by the amount of the tobacco buydown payment; this is the only reduction in price that can be made. 43

1. Tobacco Substitutes

The Tennessee tobacco tax is imposed on the privilege of selling cigarettes and other tobacco products, which are defined as "cigars . . . manufactured tobacco, and snuff of all descriptions made of tobacco or any substitute for tobacco."44 Other tobacco products are taxed at the rate of 6.6% of the wholesale cost price (except vapor products, which are taxed at 10%). A wide variety of new products that do not contain tobacco are being introduced in Tennessee. Some of these products contain nicotine, while others do not. Some of these products are packaged to look like tobacco products, while others are packaged in new an d unique ways. In light of these various new products, it is sometimes unclear what constitutes a tobacco substitute for purposes of the tobacco tax. Products Not Subject to Tobacco Tax The Department will not apply the tobacco tax to non-tobacco products without statutory clarification as to what is considered a tobacco substitute. The Department has clarified that the following products are not subject to the tobacco tax: hemp cigarettes and herbal cigarettes that do not contain tobacco, smokeless oral nicotine pouches, and nicotine gum. The Department has also clarified that smokeless nicotine products, which are defined as "nicotine that is in the form of a solid, gel, gum, or paste that is intended for human consumption," are not subject to the tobacco tax.46

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1. Tobacco Tax Stamp Affixing Agent

The tobacco tax on cigarettes, except for reconciliation payments of taxes on cigarettes made by cigarette rolling machine operators, 47 is paid by purchasing stamps from the Department. The Department is authorized to appoint agents to sell unaffixed stamps, as well as manufacturing distributors and wholesale dealers and jobbers as agents to affix and sell tax stamps. Stamp affixing agents are not authorized to sell stamps not affixed to tobacco products.48 The process for becoming a stamping agent is as follows:  When registering for tobacco tax in TNTAP, the taxpayer will be prompted to answer a question asking whether they will be stamping tobacco products.  Answering "yes" will initiate a tobacco stamp account to be set up.  Once the taxpayer's stamp account is set up, the taxpayer may purchase stamps through TNTAP. The process for ordering stamps is as follows:  The taxpayer will need to obtain a FedEx account number (the Department only uses FedEx to ship tobacco tax stamps).  The taxpayer will need to provide an address to which the stamps will be delivered, as well as the amount and type of stamps requested.  Stamps must be paid for at the time the order is placed.  If the taxpayer wishes to defer payment for the stamps, the taxpayer must have a Tobacco Stamp Credit Bond on file with the Department.  If the taxpayer defers payment for the stamps, the balance is due on the 25 th of the month, regardless of weekends or holidays.

1. Credit for Damaged Tobacco Stamps

The Department may issue a credit or refund for tobacco tax stamps that were purchased from the Department but subsequently returned to the Department unused due to the stamps being damaged. The refund must be requested within two years of the date on which the stamps were purchased from the Department.

June 2026 19 | P ag e To receive a credit for damaged tobacco stamps, the taxpayer should complete the Cigarette Stamps Worksheet (Form TOB 551). The number of stamps the taxpayer is returning should be listed in Column B of the worksheet. The taxpayer can receive credit for the stamps if at least 50% of the stamp is showing. The taxpayer can also receive a credit by returning the tobacco back to the manufacturer. If returned to the manufacturer, the taxpayer must complete TOB 551 and provide a copy of the credit memo from the manufacturer, a notarized affidavit, the bill of lading, and a copy of the shipping label. Credits can only be obtained by the company or individual who purchased the stamps. Tobacco Tax Return The Tennessee Tobacco Products Return (Form TOB 552) is used to report the purchases, stamping activity, and inventories of cigarettes, little cigars, other tobacco products ("OTP"), and vape products for the month indicated on the return. Note, although the paper return is available for reference, the taxpayer must file this tax return electronically through TNTAP. The return is due on the 15th day of the month following the reporting period, regardless of whether any transactions have occurred.

1. Schedules A and B

The taxpayer is to reconcile the tobacco stamps used during the month with the disposition of packs of cigarettes during the month. Schedules A and B of the return are used to report the disposition of cigarette packs during the month. In-state wholesalers complete Schedule A and out-of-state wholesalers complete Schedule B.

1. Schedule C

The disposition of Tennessee cigarette stamps is entered on Schedule C. Both in -state and out-of-state wholesalers complete Schedule C.

1. Schedule D

Schedule D of the tax return is used to report tax due on other tobacco products. In-state wholesalers will report and pay tobacco tax on the cost price of other tobacco products less the cost of out-of-state sales of other tobacco products. Out-of-state wholesalers will report and pay tobacco tax on the cost of other tobacco products sold into the state.

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1. Schedule E

Schedule E is used to report and pay the cigarette tax on roll-your-own machines ("RYO"). Anyone who uses a RYO machine is required to report and pay the tax based on the number of cigarettes rolled/sold during the month. Credit is allowed for the tobacco tax paid on the tobacco used to produce the RYO cigarettes.

1. Schedule F

Schedule F of the tax return is used to report tax due on vapor products. In -state wholesalers will report and pay tobacco tax on the cost price of vapor products less the cost of out-of-state sales of vapor products. Out-of-state wholesalers will report and pay tobacco tax on the cost of vapor products sold into the state.

June 2026 21 | P ag e 1 Public Chapter 324 (2025). 2 Tenn. Code Ann. § 67-4-1002. 3 See Tenn. Code Ann. § 67-4-1025 for the distribution of tobacco tax revenue. 4 Tenn. Code Ann. § 67-4-1003. 5 Tenn. Code Ann. § 67-4-1015(c). 6 Tenn. Code Ann. § 67-4-1004 7 Tenn. Code Ann. § 67-4-1005 8 Id. 9 Tenn. Code Ann. § 67-4-1001(28). 10 "Consumable material" means "a liquid nicotine solution, whether natural or synthetic, or a liquid nicotine analogue intended for use in a vapor product." See Tenn. Code Ann. § 67-4- 1001(7). 11 "Open-system vapor product" means a vapor product that can be filled and refilled with consumable material by a consumer. 12 See Important Notice #12-08. 13 See Important Notices #10-03 and 12-08. Beginning August 1, 2025, retailers are authorized to purchase vapor products only from licensed distributors or wholesalers of tobacco products. 14 There is an exception to this provision, if the retailer possesses no more than 20 packages of 20 cigarettes each, or cigars in an amount not exceeding 50 cigars, or other tobacco products with a retail value of not more than $2.00 that have been brought into the state by the retailer. 15 Tenn. Code Ann. § 67-4-1019. 16 Tenn. Code Ann. § 67-4-1034(b). 17 "Timely filed premarket tobacco product application" means an application pursuant to 21 U.S.C. § 387j for a vapor product containing nicotine derived from tobacco, marketed in the United States as of August 8, 2016, that was submitted to the United States F ood and Drug Administration on or before September 9, 2020, and accepted for filing. 18 "Foreign adversarial country" means a country designated by the United States Department of Commerce under 15 CFR 791.4 on January 1, 2025. 19 Tenn. Code Ann. § 67-4-1034(f). 20 Tenn. Code Ann. § 67-4-1034(n). 21 Tenn. Code Ann. § 67-4-1034(i). 22 Tenn. Code Ann. § 67-4-1034(j). 23 See Important Notice #15-23. 24 Tenn. Code Ann. § 67-4-2604. 25 See Important Notice #15-23. 26 On November 23, 1998, Tennessee and 51 other state and jurisdictions entered a multi - state settlement with major tobacco companies, the "Master Settlement Agreement." Since its creation, more than 50 tobacco companies have joined the MSA. These companies ar e referred to as "participating manufacturers." Manufacturers that have not joined the agreement are "non-participating manufacturers."

June 2026 22 | P ag e 27 Id. 28 See Important Notice #21-01. 29 Id. 30 See Important Notices #13-07 and 13-10. 31 Tenn. Code Ann. § 67-4-1015(d). 32 Tenn. Code Ann. §§ 67-4-1001(13) and 67-4-1015. 33 TENN. COMP. R. & REGS. 1320-04-03-.01(3). 34 Tenn. Code Ann. §§ 67-4-1001(23) and 67-4-1015. 35 TENN. COMP. R. & REGS. 1320-04-03-.01(3). 36 Tenn. Code Ann. §§ 67-4-1001(27) and 67-4-1015. 37 TENN. COMP. R. & REGS. 1320-04-03-.01(3). 38 Tenn. Code Ann. §§ 67-4-1001(22) and 67-4-1015. 39 Tenn. Code Ann. §§ 67-4-1001(4) and 67-4-1015. 40 See Tenn. Code Ann. § 47-25-301 et seq. 41 See Important Notice #15-10. 42 Tenn. Code Ann. § 47-25-302(1). 43 See Important Notice #15-03. 44 Tenn. Code Ann. § 67-4-1005(a). 45 Note, vapor products (including electronic cigarettes) are now subject to the tobacco tax effective July 1, 2025. 46 See Important Notice #21-05 and Tenn. Code Ann. § 67-4-1005(b). 47 See Tenn. Code Ann. § 67-4-1031. 48 Tenn. Code Ann. § 67-4-1006. 49 Tenn. Code Ann. § 67-4-1008. TENN. COMP. R. & REGS. 1320-04-03-.08.