OHIO LEGISLATIVE SERVICE COMMISSION
Office of Research Legislative Budget
www.lsc.ohio.gov and Drafting Office
H.B. 513 Bill Analysis
134th General Assembly
Click here for H.B. 513’s Fiscal Note
Version: As Reported by Senate Ways and Means
Primary Sponsors: Reps. Cross and Roemer
Effective Date:
Mackenzie Damon, Attorney
SUMMARY
Allows a wholesaler or distributor to obtain a refund of excise taxes on cigarettes, other
tobacco products, and nicotine vapor products remitted on bad debts arising from the
sale of those products.
Authorizes an exemption from the state’s vapor products tax for certain distributors.
Prohibits local regulation of tobacco products and alternative nicotine products.
DETAILED ANALYSIS
Tobacco and vapor product taxation and regulation
Excise tax refunds on bad debts
The state levies excise taxes on the sale of cigarettes, other tobacco products (OTP), and
vapor products containing nicotine. Cigarette taxes are generally paid by wholesalers, whereas,
OTP and vapor products taxes are paid by distributors. In either case, the taxes are passed
through to retailers and, ultimately, consumers of those products.
The bill allows a wholesaler or distributor to obtain a refund of excise taxes remitted on
certain bad debts arising from the sale of those products, less any discounts allowed, under
continuing law, for affixing the tax stamp or prompt payment (referred to in this analysis as
“qualifying bad debts”).1 The deduction applies only to the specific tax levied on the product
that is the basis of the qualifying bad debt, and applies to both the state and, if applicable, local
This analysis was prepared before the report of the Senate Ways and Means Committee appeared in
the Senate Journal. Note that the legislative history may be incomplete.
1 See R.C. 5743.05 and 5743.52, not in the bill.
December 13, 2022
Office of Research and Drafting LSC Legislative Budget Office
excise taxes. (Under continuing law, Cuyahoga County is authorized to levy excise taxes on
cigarettes to fund a regional arts and cultural district and to construct and operate a sports
facility.2 No other local excise tax may specifically target these products.)
Under continuing law, wholesalers are primarily required to pay the cigarette tax by
purchasing tax stamps, which must be fixed to each package of cigarettes, and distributors are
required to remit directly the taxes on OTP and vapor products.3
The bill allows a wholesaler or distributor to apply to the Tax Commissioner for a refund
of the cigarette, OTP, or vapor products taxes paid on qualifying bad debts. The application
must include a copy of the original invoice, evidence of delivery of the product to the
purchaser, evidence that the purchaser did not pay for the product, evidence that the
wholesaler or distributor used reasonable collection practices to try to collect the debt, and any
other information the Commissioner requires. An application for a refund of OTP or vapor
products taxes must, in addition to the information described above, include evidence of the
wholesale price or vapor volume, as applicable, at the time the product was subject to taxation.
A qualifying bad debt is any debt arising from the sale of cigarettes, OTP, or vapor
products that satisfy each of the following criteria:
The cigarette, OTP, or vapor products tax has been paid.
The debt has become worthless or uncollectible.
The debt has been uncollected for at least six months, but not more than three years
from either the time the debt became uncollectible (in the case of cigarette taxes) or
the time the tax was remitted (OTP and vapor products taxes).
The wholesaler or distributor charges off the debt as uncollectable on its books on or
after January 1, 2023.
The wholesaler or distributor deducts, or would be allowed to deduct, the bad debt in
calculating federal income tax liability.
A qualifying bad debt does not include interest or financing charges, collections costs,
accounts receivable that have been sold or assigned to a third party, or repossessed property.
The Commissioner must provide for payment to a wholesaler or distributor entitled to a
refund. No person other than a wholesaler or distributor that remitted the applicable tax and
generated the bad debt may receive a bad debt refund. If any portion of a bad debt for which a
wholesaler or distributor receives a refund is later paid, the wholesaler or distributor must pay
the applicable tax on the amount of the debt recovered. The Commissioner may adopt any
rules necessary to administer these refunds.4
2 R.C. 5743.021 and 5743.024, not in the bill.
3 R.C. 5743.03 and 5743.51, not in the bill.
4 R.C. 5743.06 and 5743.53; Section 3.
P a g e |2 H.B. 513
As Reported by Senate Ways and Means
Office of Research and Drafting LSC Legislative Budget Office
Continuing law authorizes a very similar deduction and refund for sales taxes paid on
bad debt.5 However, sales taxes are assessed against a consumer and remitted to the vendor,
for payment to the state. In contrast, the wholesaler or distributor is generally liable for the
cigarette, OTP, and vapor products tax even though each tax is generally passed down to
retailers and consumers as a matter of practice.
Vapor products tax exemption for certain distributors
The bill authorizes an exemption from the state’s vapor products tax for certain
distributors.
In general, the vapor products tax applies at the first point in which a distributor
receives untaxed products in the state. Under the bill, a distributor that receives untaxed vapor
products is not required to pay the tax if the distributor (1) is a manufacturer or importer of
vapor products registered with the state and the federal Bureau of Alcohol, Tobacco, Firearms,
and Explosives and (2) only sells vapor products to other state-licensed distributors or to
purchasers outside of the state. However, the bill allows such a distributor to pay the tax
voluntarily on products it sells to another distributor in the state, if that other distributor agrees
to the arrangement in a signed statement filed with the Tax Commissioner.6
The vapor products tax also applies to the “storage, use, or consumption” of vapor
products, if the tax has not already been paid on the products by a distributor or an out-of-state
seller. The bill exempts a manufacturer or importer described above from paying this tax on its
storage, use, or consumption of vapor products that will be sold outside of Ohio. 7
Additionally, under continuing law, any person that intends to transport vapor products
with a volume greater than 500 milliliters (for liquid products) or 500 grams (nonliquids) must
first obtain consent from the Tax Commissioner. The consent is not required if the tax has
already been paid on the transported product. The bill adds that consent is also not required if
that volume of product is transported by a manufacturer or importer described above, even if
the tax has not been paid.8
Local regulation of tobacco products and alternative nicotine
products
The bill states that the regulation of tobacco products and alternative nicotine products9
is a matter of general statewide concern that requires statewide regulation. The bills states that
Ohio has adopted a comprehensive plan with respect to all aspects of the giveaway, sale,
purchase, distribution, manufacture, use, possession, licensing, taxation, inspection, and
5 R.C. 5739.121, not in the bill.
6 R.C. 5743.01(X) and 5743.51(E).
7 R.C. 5743.63.
8 R.C. 5743.64.
9 Defined in R.C. 2729.02, not in the bill.
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As Reported by Senate Ways and Means
Office of Research and Drafting LSC Legislative Budget Office
marketing of tobacco products and alternative nicotine products. The bill prohibits a political
subdivision from enacting, adopting, renewing, maintaining, enforcing, or continuing in
existence any charter provision, ordinance, resolution, rule, or other measure that conflicts
with or preempts any policy of the state regarding the regulation of tobacco products or
alternative nicotine products, specifically including the following:
Setting or imposing standards, requirements, taxes, fees, assessments, or charges of any
kind regarding tobacco products or alternative nicotine products that are the same as or
similar to, that conflict with, that are different from, or that are in addition to, any
standard, requirement, tax, fee, assessment, or other charge established or authorized
by state law. However, the bill does not prohibit any local taxes or fees already expressly
authorized by state law, i.e., local sales taxes and cigarette taxes.
Lowering or raising an age requirement provided for in state law in connection with the
giveaway, sale, purchase, distribution, manufacture, use, possession, licensing, taxation,
inspection, and marketing of tobacco products or alternative nicotine products;
Prohibiting an employee 18 years of age or older of a manufacturer, producer,
distributor, wholesaler, or retailer of tobacco products or alternative nicotine products
from selling tobacco products or alternative nicotine products;
Prohibiting an employee 18 years of age or older of a manufacturer, producer,
distributor, wholesaler, or retailer of tobacco products or alternative nicotine products
from handling tobacco products or alternative nicotine products in sealed containers in
connection with manufacturing, storage, warehousing, placement, stocking, bagging,
loading, or unloading.
The bill requires a court to award costs and reasonable attorney fees to any person,
group, or entity that prevails in a challenge to an ordinance, resolution, regulation, local law, or
other action as being in conflict with the bill.
Finally, the bill states the following:
The general assembly finds and declares that this section is
part of a statewide and comprehensive legislative enactment
regulating all aspects of the giveaway, sale, purchase, distribution,
manufacture, use, possession, licensing, taxation, inspection, and
marketing of tobacco products and alternative nicotine products.
The general assembly further finds and declares that the
imposition of tobacco product and alternative nicotine product
regulation by any political subdivision is a matter of statewide
concern and would be inconsistent with that statewide,
comprehensive enactment. Therefore, regulation of the giveaway,
sale, purchase, distribution, manufacture, use, possession,
licensing, taxation, inspection, and marketing of tobacco products
and alternative nicotine products is a matter of general statewide
concern that requires uniform statewide regulation. By the
enactment of this section, it is the intent of the general assembly
P a g e |4 H.B. 513
As Reported by Senate Ways and Means
Office of Research and Drafting LSC Legislative Budget Office
to preempt political subdivisions from the regulation of tobacco
products and alternative nicotine products.10
COMMENT
The bill may be vulnerable to a challenge under the Home Rule Amendment to the Ohio
Constitution, which allows a municipal corporation to exercise all powers of local self-
government and to adopt and enforce within their limits such local police, sanitary, and other
similar regulations as are not in conflict with general law.11 Municipal corporations have
authority to supplement state police regulations so long as the municipal regulation does not
conflict with the state regulation.12 The Ohio Supreme Court previously upheld similar
preemptive language regarding firearms13 but disallowed language attempting to preempt local
towing regulations.14
HISTORY
Action Date
Introduced 12-14-21
Reported, H. Ways & Means 05-25-22
Passed House (90-0) 06-01-22
Reported, S. Ways & Means ---
ANHB0513RS-134/ks
10 R.C. 9.681.
11 Ohio Constitution, Article XVIII, Section 3.
12 Mendenhall v. City of Akron, 117 Ohio St.3d 33 (2008).
13 Cleveland v. State, 128 Ohio St.3d 135 (2010).
14 Cleveland v. State, 138 Ohio St.3d 232 (2014).
P a g e |5 H.B. 513
As Reported by Senate Ways and Means
Statutes affected: As Introduced: 5743.53
As Reported By House Committee: 5743.53
As Passed By House: 5743.53