The Prevent All Cigarette Trafficking (PACT) Act is a legally binding act passed in 2009, which amended the 1949 Jenkins act. It was passed to tackle the online selling of untaxed cigarettes. The 2009 amendment prohibits the United States Postal Service (USPS) from delivering cigarettes and smokeless tobacco. Sellers are required to register with the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) as well as the tax administrators of each state.
The PACT Act sets out the requirements for online sellers to sell cigarettes and smokeless tobacco. To comply with the PACT act, online sellers are required to collect appropriate state and local taxes, follow strict rules for the collection of tax and tax payment, and must report their activities to the State and Federal Government. The Act also lays out standards required for private carriers that plan to deliver cigarettes or any type of smokeless tobacco.
Preventing Online Sales of E-Cigarettes to Children Act
On December 21st, 2020 Congress passed the Consolidated Appropriations Act, 2021 which most people known as the coronavirus relief bill. Among many things bundled with this package was an amendment to the PACT Act that would close a loophole in which children could purchase vaping products online to bypass any age requirements. The amendment has meant major changes for online sellers of electronic nicotine delivery systems (ENDS), better known to the public as vape products. Additionally, this amendment includes any vaping product, not just nicotine. In the next few months following USPS’s example, major mail carriers including FedEx, UPS, and DHL have decided to follow the Pact Act amendment restrictions in order to avoid the complicated process and fees associated with sending ENDS products that comply with the Pact Act.
Seller Compliance
Any online seller of vaping products is now required to do the following:
- Verify the age of each customer through a database that is commercially available.
- Get the signature of an adult when delivering through a private shipping service.
- Register with ATF and the U.S. Attorney General.
- Register with state and local tax administrators in all states and localities where they do business.
- Collect and pay all city, county, and state taxes that apply, affixing all required tax stamps to each of the products sold.
- Retain records for 5 full years for any “delivery interrupted because the carrier or service determines or has reason to believe that the person ordering the delivery is in violation of the [PACT Act]”.
- Each month, a list of all transactions must be sent to each state’s tax administrator, including the names and addresses of each customer sold to, the amount and type of each product sold, and the name, address, and phone number of the person delivering the shipment to the recipient.
Essentially, the PACT Act amendment requires additional labelling, delivery, and recordkeeping requirements for sellers of ENDS products.
Mike’s Worldwide, Inc, (MWI) Requirements for Bulk Shipping
MWI, as a distributor and wholesaler of vaping products, provides an online form which potential buyers must fill out and submit before they may purchase products from MWI. This form requires the customer to supply appropriate business documents that prove they are business and not an individual, as well as additional documents if the sale includes vaporizers, nicotine-related products, and vape-related products that are nicotine-free—in other words, any products that are vape-related.
Consequences for Non-Compliance
The PACT act includes severe criminal and civil penalties for those who do not meet its standards. Additionally, these standards will no longer be maintained by the FDA, but by the ATF, a police agency that takes the enforcement of laws under its purview very seriously. Non-compliance that is based on ignorance or misunderstanding of these legal requirements is still non-compliance, and online sellers that do not follow the new law are liable to face the consequences of non-compliance. The ATF may decide to make an example of online sellers at any time, so secure your business by staying in compliance.
Criminal Penalties
Anyone who knowingly violates the Act may be put in prison for up to three years, fined under title 18 of the United States Code, or both. Common carriers, independent delivery services, and their employees, will also be subject to criminal penalties.
Civil Penalties
Violating the regulations in the PACT act amendment will result in a fine of either $5,000 for a first offence and $10,000 for any subsequent violation, or 2% of the company’s gross sales for the last year. The penalty will be whichever is greater of these two options. For carriers and delivery services, the fine is $2,500 for the first offence and $5,000 for each subsequent offence that takes place within a year of the last one.
Small Businesses Forced to Adjust
What is not yet visible is the scope of the economic and personal cost to vape-related businesses. For example, consider Poplar Creek Farms in Green Creek, North Carolina, a small online seller of smoke shop products. This is the message they display on their website: “…we regret to announce that we will cease to offer vape products and vape accessories effective March 28th, 2021. We are a small farm, and like many small companies, we do not have the resources to get private shipping services, or to maintain regulatory compliance in a complicated regulatory environment.” Poplar Creek Farms is shifting focus to other smoke shop products, which may help reduce the economic impact of the new laws.
Moving Forward with the PACT Act
While no one is arguing that keeping vaping products from children is a bad idea, the amendment has sent a negative economic impact through the industry. Small companies in the smoke shop and vape shop industry are being affected the most due to the expense and time required to comply with the strict requirements of the Pact Act. However, MWI is still here for all your smoke shop and vape shop needs. MWI is ready to roll with the punches because we know that this largely unregulated industry changes all the time.
