The Texas Supreme Court is considering what exactly constitutes a “tobacco product” under state law — and whether a line of oral nicotine products should be taxed like other tobacco products.
Though a national tobacco seller disagrees, clarifying what fits the definition of a tobacco product has important statewide implications, according to an op-ed by former Texas Comptroller Glenn Hegar. That includes the loss of “hundreds of millions of dollars” in state tax revenue and children’s potential access to nicotine.
Tobacco distributor RJR Vapor argued in the high court Wednesday it shouldn’t have to pay state tobacco taxes on the VELO nicotine pouches and lozenges it sells in Texas. The products contain nicotine isolate extracted from tobacco, but RJR Vapor attorney Christian Vergonis told justices that shows the products are only “made from” tobacco, not “made of tobacco or a tobacco substitute,” which is how the state tax code defines a tobacco product.
“Tree sap extracted from a tree is not a tree,” Vergonis said. “Vitamin C extracted from an orange is not an orange. Calcium extracted from milk is not milk. So, these extracts are not the product itself.”
The company is looking to get a $16,000 refund on taxes it paid under protest in 2020 after the comptroller determined VELO pouches and lozenges were taxable tobacco products. After RJR Vapor sued, both a Travis County district court and the Third Court of Appeals sided with the company, finding that the pouches and lozenges don’t fall under the “made of tobacco or a tobacco substitute” category.
While the appeals court didn’t address it, the district court agreed with RJR Vapor that the comptroller’s interpretation of state law violates the company’s constitutional rights due to its vagueness and the lack of equal, uniform taxation.
The comptroller, which oversees state taxes, appealed. It argues the VELO products are in fact made of tobacco — they’re just a chemically processed version of the plant, akin to the fermented tobacco product snuff. VELO products are different from non-taxable nicotine replacement therapy products, or NRTs, because the Food and Drug Administration hasn’t approved VELO pouches as a method of curbing nicotine addiction.
RJR Vapor disagrees, arguing federal laws already prohibit selling VELO products to minors, a principle the state of Texas strictly enforces. And the FDA, RJR Vapor pointed out, authorized the marketing of 20 ZYN nicotine pouches in January, finding they’re appropriate for the protection of public health compared to cigarettes or smokeless tobacco products — but the agency stopped short of calling the pouches FDA approved.
But if Texas Supreme Court justices don’t see it that way, Deputy Solicitor General William Cole said they should consider the VELO products at issue tobacco substitutes. The comptroller also argues not considering VELO pouches and lozenges as tobacco products could allow distributors to sell to minors, and people in correctional facilities could legally access the products, too.
“The reason, stepping back, people are using these pouches is because they get nicotine from them,” Cole said. “It's not for — as some of my friends on the other side have said — like, the taste or something. If it was because they wanted mint flavor, they may well just be chewing spearmint gum or Lifesavers.”
The comptroller’s office under Hegar previously determined e-cigarettes don't contain tobacco and therefore aren’t taxable as tobacco products, which justices questioned as it relates to VELO products. Cole said the comptroller doesn’t necessarily still think that way, although Acting Comptroller Kelly Hancock currently took over the role earlier this year.
Distributors pay the price for tobacco taxes, according to Vergonis, not consumers. But the court’s ruling will mark one of several important legal decisions made about how controversial recreational substances should be classified or sold — if at all — in Texas.
Hemp license holders can no longer sell consumable hemp products to people under 21 under a new temporary rule, and the Texas Supreme Court in January will consider whether the state Department of State Health Services can ban delta-8 in Texas.
Toluwani Osibamowo is KERA’s law and justice reporter. Got a tip? Email Toluwani at tosibamowo@kera.org.
KERA News is made possible through the generosity of our members. If you find this reporting valuable, consider making a tax-deductible gift today. Thank you.
