Nevada Supreme Court Upholds Seizure of $272K Worth of Tobacco Products from Unlicensed Logistics Company

Noncompliance with a state’s tobacco licensing and permitting requirements is a real threat to your business’s operations and financial stability. Failure to follow the rules can lead to fines, license suspensions, and, in some cases, seizure of inventory as contraband. In the complex chain of tobacco product distribution, you must also worry about the compliance of your suppliers and any other entity that touches your product along the way. The Nevada Supreme Court emphasized this point for one unfortunate wholesaler as the court upheld the seizure of its OTP from an unlicensed logistics company.

What Is a Logistics Company That Requires a Nevada License?

Nevada law requires any person or business engaged as a logistics company to obtain a license from the Department of Taxation. See NRS 370.567(3). Logistics companies are those authorized by a manufacturer or wholesaler dealer to, on their behalf, temporarily store, fulfill orders, and coordinate the transport or delivery of cigarettes and other tobacco products (OTP) from a facility in Nevada. See NRS.370.547 9 (emphasis added). However, the state excludes other licensed manufacturers or dealers and common carriers from the definition of “logistics company” and the need to obtain a license.

Westco Distribution, LLC v. State of Nevada Department of Taxation

The Supreme Court of Nevada added meaning to the definition of “logistics company” when it upheld the Department’s seizure of 17 pallets, approximately $272,000 worth of Westco’s OTP that it confiscated from a third party (TForce). TForce was temporarily storing the OTP without a logistics company license when a Department special agent seized it as contraband.

Westco claimed the Department exceeded its statutory authority to seize the OTP because TForce did not meet the requirements of a logistics company. It believed TForce was not a logistics company because it did not “temporarily store, fulfill orders, and coordinate transport or delivery” of OTP. Rather, TForce only engaged in one of those activities by temporarily storing Westco’s OTP. The Supreme Court of Nevada disagreed with Westco and determined a business operated as a logistics company if it participated in any of the listed activities on behalf of a wholesaler. To read the opinion in its entirety, click here.

Key Takeaway for Nevada Tobacco Distributors and Wholesalers

Distributors and wholesalers should always conduct due diligence and compliance checks when working with other parties to supply, distribute, or otherwise handle their OTP. Working with unlicensed parties can put your inventory at risk of seizure and could leave you with little recourse in the event of loss. Likewise, parties that agree to manage OTP for others should confirm their regulatory and licensing obligations to avoid liability from a Department inspection. Most state tax and licensing departments provide updated lists of businesses legally authorized to conduct the sale, storage, or delivery of tobacco products in their jurisdiction. If you have any questions about how those licensing or compliance obligations may impact your operations in Nevada or another state, consider meeting with one of our tobacco tax and regulatory professionals.

Schedule a free consultation with our team today.