The Texas Supreme Court on Friday dealt a blow to the maker of a nicotine pouch product, finding that the company’s VELO pouches are subject to the same duty levied on cigars, chewing tobacco and snuff.
RJR Vapor, which makes the pouches, had urged the court to interpret the applicable tax statute — that defines tobacco products as “made of tobacco or a tobacco substitute” — in a way that would not encompass its products, which contain nicotine chemically extracted from tobacco. The Centers for Disease Control and Prevention published data that shows, between January 2023 and April 2025, nicotine pouch sales nationwide increased 207 percent, from $145.5 million to $446.8 million, illustrating the tax implications of the court’s decision in this case.
Justice Brett Busby authored the court’s 20-page opinion, concluding that the VELO pouches contain a tobacco substitute “because the primary ingredient in VELO pouches is a blend of powdered non-tobacco plant matter and nicotine, which together take the place and function of taxable pulverized tobacco.”
The relevant question that must be answered to decide the case, Justice Busby wrote, is not whether the pouches “are a substitute for traditional tobacco products,” but instead “whether some ingredient that VELO pouches are ‘made of’ … is a substitute for tobacco in those traditional products.”
“We hold that the blend of plant matter and nicotine isolate that VELO pouches are ‘made of’ is a ‘tobacco substitute’ because it takes the place of and serves a similar function to the pulverized tobacco taxed under subsection 155.001(15)(D),” the opinion reads. “This result follows from the plain meaning of the statutory terms.”
But the court did leave one door open for RJR Vapor and remanded the case back to the Third Court of Appeals to consider the company’s argument that the tax violates its right to “equal and uniform taxation” under the state constitution because the comptroller taxes VELO pouches but not nicotine replacement therapies.
During oral arguments in October, counsel for RJR Vapor used several examples to drill down on the distinction underpinning the argument that the pouches are not made of tobacco and are not a tobacco substitute, telling the court in part that tree sap extracted from a tree is not a tree, vitamin C extracted from an orange is not an orange and calcium extracted from milk isn’t milk.
In a separate opinion, which was also apparently the first of its kind to be issued by the Texas Supreme Court, Justice James Sullivan gave readers a sense of his personality.
He, and Justice Jane Bland who joined him, filed a four-page opinion concurring dubitante.
“As any law nerd will proudly tell you, dubitante is just a Latinism for ‘doubting,’” Justice Sullivan wrote in a footnote. “Surprisingly enough, a quick Westlaw search shows this to be the first dubitante opinion our Court has ever seen filed. … The late, great Norm Macdonald might’ve said it best: ‘[T]o seek truth, it is necessary once in the course of our life, to doubt, as far as possible, of all things.’ Just kidding — it was another philosopher who said so. See René Descartes.”
Justice Sullivan wrote that he was concurring dubitante because he was “not so sure it matters whether [VELO pouches] contain any plant matter” when considering whether they should be subject to the tobacco tax.
“Respectfully, I’m doubtful that the presence of ‘microcrystalline cellulose, a naturally occurring organic compound found in the cell walls of plants,’ is essential to a VELO pouch’s having been ‘made of … a tobacco substitute,’” he wrote. The VELO pouch’s key ingredient is also the tobacco plant’s most important feature: the valuable and addictive nicotine. That fact alone is enough, it seems to me, to hold that VELO pouches are ‘made of … a tobacco substitute’ and should get taxed accordingly.”
After opening with Descartes, Justice Sullivan invoked a different philosopher in conclusion.
“Who knows how much of the biomass can be removed before it’s no longer ‘tobacco’? Not me,” he wrote. “But my own lingering uncertainty about this Ship of Theseus needn’t detain me from casting a vote in favor of the Court’s judgment today.”
According to court records, RJR Vapor asked the comptroller whether its VELO products qualified as tobacco products under the tax law, and the comptroller replied yes, because they contain “nicotine that was previously extracted from a tobacco leaf.”
RJR Vapor paid the tax but submitted protest letters with each payment, and in August 2020 filed a tax-protest suit against the comptroller.
After a hearing where Travis County District Judge Amy Clark-Meachum heard arguments on cross-motions for partial summary judgment, in she sided with RJR Vapor in July 2021, agreeing its pouches were not “tobacco products” as defined under the state’s tax code.
The judge held a bench trial in January and February 2022 on whether the company was entitled to a refund. She determined in an April 2022 final judgment that RJR Vapor was entitled to a $16,071.68 refund and that the language in the tax statute — “made of tobacco or a tobacco substitute” — was unconstitutionally overbroad and vague.
“The language … is not reasonably clear on its face and invites discriminatory and arbitrary government enforcement,” she wrote.
The Third Court of Appeals in December 2023 largely upheld that ruling but reversed Judge Clark-Meachum on her finding that the phrase was unconstitutionally vague.
Justice Kyle Hawkins, who was appointed to the court after oral arguments took place in this case, did not participate in the decision, nor did Justice Debra Lehrmann.
RJR Vapor is represented by Christian G. Vergonis, Ryan J. Watson and Margaret I. Lyle of Jones Day.
Texas is represented by William F. Cole, Sara B. Baumgardner and Aaron L. Nielsen of the Office of the Attorney General.
The case number is 24-0052.