RJR Vapor Co. sells oral nicotine products in Texas, including VELO pouches made of a porous fleece material filled with a dry powder that users place between the cheek or lip and gum, as with chewing tobacco, moist snuff, or snus.¹ VELO contains nicotine isolate chemically extracted from tobacco, but no tobacco leaf or other tobacco plant matter, and the filling is mostly cellulose, with nicotine isolate typically only about five percent by weight.² When it introduced the pouches in Texas, RJR asked the Comptroller for a general information letter, the Comptroller concluded they are taxable tobacco products, and RJR paid the tax under protest.³

RJR sued for a refund, a declaration that the pouches are not taxable, and relief on constitutional challenges to the Tax.¹ The trial court granted summary judgment for RJR on the statutory question and after a bench trial held the Tax Code language unconstitutional both facially and as applied, and the Third Court of Appeals (Austin) affirmed that the pouches are not taxable without reaching the constitutional issues.² The vehicle in this Court is a petition for review filed by the Comptroller and the Attorney General, argued October 8, 2025, and decided May 8, 2026.³ Justices Lehrmann and Hawkins did not participate.⁴

Petition for review from the Third Court of Appeals (Austin) in a tax-refund suit; argued October 8, 2025, and decided May 8, 2026.⁵

The State presents two issues:¹ 1. Whether VELO products are "tobacco products" under Tax Code Section 155.001(15)(E), meaning "an article or product that is made of tobacco or a tobacco substitute." 2. If so, whether the contested definition is constitutional (unbriefed in the petition).

The Court decided the first and remanded RJR's equal-and-uniform challenge.²

The Court construed the Tax Code's text, using dictionary definitions and the statute's context, and applied the canon of ejusdem generis.¹

Whether VELO is "made of tobacco or a tobacco substitute."

State (Petitioners): VELO products are "made of tobacco" because they are made of chemically processed tobacco, nicotine isolate, and statutory text and context show the Tax applies to processed tobacco; alternatively, they are "made of . . . a tobacco substitute" because nicotine isolate provides a way to consume nicotine without using tobacco.¹ The State frames the case as one of statewide revenue importance affecting the construction of several statutes.²

RJR Vapor (Respondent): A product must at a minimum contain an ingredient to be "made of" it, and VELO contains no tobacco leaf or plant matter, and nicotine isolate chemically identical to that derived from other sources such as tomatoes is not tobacco; nor is it a "tobacco substitute" under the term's technical or ordinary meaning, which RJR says is limited to plant-based ingredients replacing tobacco.³

Whether the Tax is unconstitutional.

RJR Vapor (Respondent): Even if VELO is taxable, the Comptroller's interpretation makes the Tax unconstitutionally vague and violates the requirement that taxes be equal and uniform.⁴

State (Petitioners): The State's brief treats the constitutional question as a second issue that arises only if VELO products are tobacco products.⁵

The State argued that the court of appeals' decision affects the construction or validity of multiple Texas statutes and is important for the State's tax revenues and its ability to enforce its own laws.¹ RJR answered that the Comptroller did not contend the dispute involves important issues of tax law or revenue.²

• Texas Academy of Family Physicians, et al. support the State: VELO products are made of tobacco or at least a tobacco substitute, and the Texas Constitution presents no bar.
• National Association of Convenience Stores supports RJR: clear and predictable tax rules matter to small retailers, and the tax rules had long distinguished products made of tobacco from products made from tobacco.
• McLane Company, Inc. supports RJR: a product containing neither tobacco plant matter nor a traditional tobacco substitute is not a tobacco product even if tobacco played an upstream role in making an ingredient.

Holding

Oral nicotine pouches are "made of . . . a tobacco substitute" and thus taxable tobacco products because they are products in which non-tobacco plant matter and nicotine take the place and function of tobacco as used in expressly taxed tobacco products; nicotine alone is not a tobacco substitute.¹

Reasoning

The Comptroller's reading is wrong. The Comptroller argued that nicotine consumed recreationally is a tobacco substitute, but a substitute is a thing that takes the place or function of another, and nicotine isolate, about five percent of a pouch by weight, cannot take the place or function of tobacco in any of the taxed products, and the statute's text is silent on any purpose of taxing recreational nicotine.²

RJR's reading is also wrong. The Court was not convinced that "tobacco substitute" has the limited industry meaning RJR suggested, because the historical sources describe substitutes for chewing compositions as well, and the term's plain meaning is a thing that takes the place or function of tobacco.³

Plain meaning and context. A product "made of" a substance is primarily composed of it, and the plain meaning of "tobacco" is the plant matter, so a product "made of . . . a tobacco substitute" must be composed primarily of ingredients that substitute for tobacco plant matter.⁴ The ejusdem generis canon and the Tax's imposition by weight point to a substitute for tobacco as used in traditional products like those in subsections (A) through (D).⁵

Application. VELO's blend of cellulose and nicotine isolate is a one-for-one replacement for the pulverized tobacco plant matter in snus and moist snuff, which are taxed under subsection (D), and a VELO pouch is essentially a type of snus.⁶

Constitutional challenges. RJR's constitutional claims were not moot, its vagueness challenge adds nothing to the pro-taxpayer presumption and the equal-and-uniform requirement, and the Court remanded the equal-and-uniform challenge to the court of appeals to decide first.⁷

Concurrence. Justice Sullivan, joined by Justice Bland, concurred dubitante, agreeing the pouches are taxable but doubting that it matters whether they contain any plant matter, and noting that the quintessence of tobacco plant matter is the nicotine it produces.⁸

Disposition

Court of appeals' judgment reversed, judgment rendered that VELO pouches are taxable tobacco products under Tax Code Section 155.001(15)(E), and the case remanded to the court of appeals to address RJR's equal-and-uniform challenge.⁹

Vote Breakdown

Majority Opinion by Justice Busby

Joined by Blacklock, C.J., and Bland, Devine, Huddle, and Young, JJ.

Concurrence by Justice Sullivan

Joined by Bland, J.

Did Not Participate

Hawkins and Lehrmann, JJ.