KRS 138.140: Taxation of cigarettes, tobacco products, and vapor products -- Taxes not

applicable to reference tobacco products -- Rates -- Liability for and

remittance of tax -- Administrative regulations -- General Assembly's

recognition of effect of increa sed tobacco taxes on public health -- Potential

reduction of tax on modified risk tobacco product.

(1) (a) A tax shall be paid on the sale of cigarettes within the state at a proportionate

rate of three cents ($0.03) on each twenty (20) cigarettes.

(b) Effective July 1, 2018, a surtax shall be paid in addition to the tax levied in

paragraph (a) of this subsection at a proportionate rate of one dollar and six

cents ($1.06) on each twenty (20) cigarettes.

(c) A surtax shall be paid in addition to the tax levied in paragraph (a) of this

subsection and in addition to the surtax levied by paragraph (b) of this

subsection, at a proportionate rate of one cent ($0.01) on each twenty (20)

cigarettes. The revenues from this surtax shall be deposited in the cancer

research institutions matching fund created in KRS 164.043.

(d) The surtaxes imposed by paragraphs (b) and (c) of this subsection shall be

paid at the time that the tax imposed by paragraph (a) of this subsection is

paid.

(2) (a) An excise tax is h ereby imposed upon every distributor for the privilege of

selling tobacco products in this state at the following rates:

1. Upon snuff at the rate of nineteen cents ($0.19) per each one and one -

half (1-1/2) ounces or portion thereof by net weight sold;

2. Upon chewing tobacco at the rate of:

a. Nineteen cents ($0.19) per each single unit sold;

b. Forty cents ($0.40) per each half-pound unit sold; or

c. Sixty-five cents ($0.65) per each pound unit sold.

If the container, pouch, or package on which the tax is levied contains

more than sixteen (16) ounces by net weight, the rate that shall be

applied to the unit shall equal the sum of sixty -five cents ($0.65) plus

nineteen cents ($0.19) for each increment o f four (4) ounces or portion

thereof exceeding sixteen (16) ounces sold;

3. Beginning July 1, 2026, upon premium cigars sold, at the rate of six

percent (6%) of the actual price for which the distributor sells premium

cigars;

4. a. Prior to July 1, 2026, u pon tobacco products sold, at the rate of

fifteen percent (15%) of the actual price for which the distributor

sells tobacco products, except snuff and chewing tobacco, within

the Commonwealth; and

b. On or after July 1, 2026, upon tobacco products sold, at the rate of

fifteen percent (15%) of the actual price for which the distributor

sells tobacco products, except snuff, chewing tobacco, and

premium cigars, within the Commonwealth;

5. Upon closed vapor cartridges, one dollar and fifty cents ($1.50) per

cartridge; and

6. Upon open vaping systems, fifteen percent (15%) of the actual price for

which the distributor sells:

a. The open vaping system when the actual price includes the items

described in both KRS 138.130(10)(a)1. and 2.; or

b. The liquid solution described in KRS 138.130(10)(a)2. when the

solution is sold separately.

(b) The net weight posted by the manufacturer on the container, pouch, or

package or on the manufacturer's invoice shall be used to calculate the tax due

on snuff or chewing tobacco.

(c) 1. A retailer located in this state shall not purchase tobacco products for

resale to consumers from any person within or outside this state unless

that person is a distributor licensed under KRS 138.195(7)(a) or the

retailer applies for and is granted a retail distributor's license under KRS

138.195(7)(b) for the privilege of purchasing untax -paid tobacco

products and remitting the tax as provided in this paragraph.

2. A licensed retail distributor of tobacco products shall be subject to the

excise tax as follows:

a. On purchases of untax -paid snuff, at the same rate levied by

paragraph (a)1. of this subsection;

b. On purchases of untax -paid chewing tobacco, at the same rates

levied by paragraph (a)2. of this subsection;

c. On purchases of untax -paid pr emium cigars, at the same rate

levied by paragraph (a)3. of this subsection;

d. On purchases of untax -paid tobacco products, except snuff,

premium cigars, and chewing tobacco, fifteen percent (15%) of the

total purchase price as invoiced by the retail distributor's supplier;

e. On purchases of untax -paid closed vapor cartridges, at the same

rate levied by paragraph (a)5. of this subsection; and

f. On purchases of untax -paid open vaping systems, fifteen percent

(15%) of the total purchase price as invoiced b y the retail

distributor's supplier as described in paragraph (a)6. of this

subsection.

(d) 1. The licensed distributor that first possesses tobacco products or vapor

products for sale to a retailer in this state or for sale to a person who is

not licensed under KRS 138.195(7) shall be the distributor liable for the

tax imposed by this subsection except as provided in subparagraph 2. of

this paragraph.

2. A distributor licensed under KRS 138.195(7)(a) may sell tobacco

products or vapor products to another d istributor licensed under KRS

138.195(7)(a) without payment of the excise tax. In such case, the

purchasing licensed distributor shall be the distributor liable for the tax.

3. A licensed distributor or licensed retail distributor shall:

a. Identify and di splay the distributor's or retail distributor's license

number on the invoice to the retailer; and

b. Identify and display the excise tax separately on the invoice to the

retailer. If the excise tax is included as part of the product's sales

price, the licensed distributor or licensed retail distributor shall list

the total excise tax in summary form by tax type with invoice

totals.

4. It shall be presumed that the excise tax has not been paid if the licensed

distributor or licensed retail distributor does not comply with

subparagraph 3. of this paragraph.

(e) A tax shall not be imposed on tobacco products or vapor products under this

subsection that are outside the taxing power of this state under the Commerce

Clause of the United States Constitution.

(3) (a) The taxes imposed by subsections (1) and (2) of this section:

1. Shall not apply to reference products; and

2. Shall be paid only once, regardless of the number of times the cigarettes

or tobacco products may be sold.

(b) The taxes imposed by subsection (1)(a) and (b) and subsection (2) of this

section shall be reduced by:

1. Fifty percent (50%) on any product as to which a modified risk tobacco

product order is issued under 21 U.S.C. sec. 387k(g)(1); or

2. Twenty-five percent (25%) for any product as to which a modified risk

tobacco product order is issued under 21 U.S.C. sec. 387k(g)(2).

(4) A reference product shall carry a marking labeling the contents as a research

cigarette, research vapor product, or a research tobacco product to be used only for

tobacco-health research and experimental purposes and shall not be offered for sale,

sold, or distributed to consumers.

(5) The department may prescribe forms and promulgate administrative regulations to

execute and administer the provisions of this section.

(6) The General Assembly recognizes that increasing taxes on tobacco products should

reduce consumption, and therefore result in healthier lifestyles for Kentuckians. The

relative taxes on tobacco products proposed in this section reflect the growing data

from scientific studies suggesting that although smokeless tobacco poses some

risks, those health risks are significantly less than the risks posed by other forms of

tobacco products. Moreover, the General Assembly acknowledges that some in the

public health community recognize that tobacco harm reduction should be a

complementary public health strategy regarding tobacco products. Tax ing tobacco

products according to relative risk is a rational tax policy and may well serve the

public health goal of reducing smoking -related mortality and morbidity and

lowering health care costs associated with tobacco-related disease.

(7) Any person su bject to the taxes imposed under subsections (1) and (2) of this

section that:

(a) Files an application related to a modified risk tobacco product shall report to

the department that an application has been filed within thirty (30) days of

that filing; and

(b) Receives an order authorizing the marketing of a modified risk tobacco

product shall report to the department that an authorizing order has been

received.

(8) Upon receipt of the information required by subsection (7)(b) of this section, the

department shall reduce the tax imposed on the modified risk tobacco product as

required by subsection (3)(b) of this section on the first day of the calendar month

following the expiration of forty-five (45) days following receipt of the information

required by subsection (7)(b) of this section.