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Modified Risk Products

Overview

MCL 205.427 of the Michigan Tobacco Products Tax Act (TPTA) provides for reduced tax rates for modified risk products if the Secretary of the United States Department of Health and Human Services has issued an order for a product under 21 USC 387k(g), and the manufacturer has provided appropriate notice to the Michigan Department of Treasury. Tax rates for these products may be reduced by 25% or 50%, dependent on whether the order was issued under 21 USC 387k(g)(1) or 21 USC 387k(g)(2).

Manufacturer Notification

Manufacturers must notify the Department of a modified risk tobacco order described in MCL 205.427(2) by completing Tobacco Tax Notification of Modified Risk Order (Form 5848) for each product and providing a copy of the order issued under 21 USC 387k(g). Instructions for submission are included on the form. Note that all required information must be completed and required documentation must be submitted with the form.
If an order is renewed, rescinded, withdrawn, or expires, manufacturers must notify the department within 10 days using the same form.

Notice of Tax Rates

Within 10 days of receipt of the Tobacco Tax Notification of Modified Risk Order (Form 5848) from the product manufacturer, accompanied by a copy of the modified risk tobacco order, the department will publish an online notice. This notice will provide the tax rate for all products which the department has received notice, along with the effective date of the tax rate. Note that the effective date will be the first day of the month following the month in which the notice is published. Similarly, the department will post notice of the recission, withdrawal, or expiration of a modified risk product within 10 days of receipt of notice from the manufacturer or, if notice is not provided, within 10 days of becoming aware of the recission, withdrawal, or expiration. Beginning the first day of the month following the month in which the department posts notice of recission, withdrawal, or expiration of a modified risk tobacco product order, the reduced tax rate will no longer apply.

The published notice should be referenced monthly to review any changes.

Return Filing

To differentiate the tax rates of modified risk products, and products taxed at the otherwise applicable tax rates, products will be identified by using a brand code on the tobacco products tax return. These brand codes will be used similarly to previous brand codes such as “PC1” identifying premium cigars, “OTP” identifying other tobacco products, or “CIG” identifying cigarettes. Brand codes for all modified risk tobacco products will be included on the same notice providing tax rates for the affected products which will be published online and regularly updated.

The first returns which may be impacted by these changes will be the February 2023 return, due March 20, 2023. This will be dependent on when the department begins receiving Form 5848 from manufacturers, to provide notice of a modified risk tobacco order.