The movement to tax increasingly popular vapor products is gaining momentum.
Several states have already passed bills revising their tobacco tax statutes
to be inclusive of vapor products and e-cigarettes and others are in the
process of doing the same. This is new territory; only time will tell
how and what will be taxed. But the wide discretion of the state legislatures
in establishing new taxes means that
all vapor products are at risk of taxation. In anticipation of that, it is
vital for vape businesses to clearly define their products and determine
what tax exemptions and exclusions might exist.
For years, Florida has successfully collected tax on “blunt wraps,”
by including them under the definition of “other tobacco products.”
Everyone in the industry knows that blunt wraps are
not tobacco products, however, and just recently a Florida administrative
law judge agreed. Meanwhile, several other states have modified their
statutes to explicitly include blunt wraps under their tobacco taxes.
The states’ desire to tax anything and everything associated with
smoking is clear.
Considering the desperation of some states to increase
revenue by increasing taxes on tobacco products, it would not be surprising to
see new taxes extend not only to the liquid nicotine but also the e-cigarettes
themselves. After all, vapor e-cigs are virtually high-tech and exponentially
more expensive versions of the wrappers that are already taxable in many states.
One source of relief may be in the recent trend in the vaping industry
to market certain products as E-Medicines. Of course, the best example
of this is vapor products used to smoke dabs, or a concentrated wax form
of THC that is created from marijuana. These dab pens can no doubt be
considered medical products when used to smoke medicinal marijuana. But
when used to smoke recreational marijuana, they are no longer “medical.”
Such a distinction is significant when dealing with sales tax, but it
could potentially also be significant for tobacco tax.
If E-Medicine vapor products are designed and marketed in such a way that
they fall outside the scope of the tobacco statute, it is possible that
these items may be excluded from the tax altogether. For retailers, distributors,
and manufacturers, it may be worthwhile to distinguish these products
from those intended to be used for tobacco, particularly when the market
for E-Medicine is expanding.
E-Vitamins are marketed as health products despite their apparently negligible
amount of vitamins.
Many are speculating on what other drugs, in addition to medicinal marijuana,
will become available in vapor form.
Recently Britain’s MHRA (Medicines and Healthcare products Regulatory Agency)
has begun approving medical license applications for the sale of e-cigarettes.
And currently, the FDA is looking into regulating the industry here as well.
So what exactly are these products and what are they primarily used for?
That is the question that legislatures around the country are considering
as they begin drafting statutes to tax vapor pens. The question is whether
you want politicians to define these products or people in the industry.
If manufacturers, distributors and retailers all take steps now to clearly
differentiate their tobacco vapor items from their non-tobacco ones, they
may be able to carve out a large tax exclusion in an industry that is
on the brink of heavy regulation.
About the author: Mr. Donnini is the president and founder of Tobacco Tax
Refunds, Inc. He is also multi-state sales and use tax attorney and an
associate in the law firm Moffa, Gainor, & Sutton, PA, based in Fort
Lauderdale, Florida. Mr. Donnini has extensive knowledge handling wholesale
tax controversy and refunds.
In his law practice Mr. Donnini's primary practice is multi-state sales
and use tax as well as state corporate income tax controversy. Mr. Donnini
also practices in the areas of federal tax controversy, federal estate
planning, Florida probate, and all other state taxes including communication
service tax, cigarette & tobacco tax, motor fuel tax, and Native American
taxation. Mr. Donnini obtained his LL.M. in Taxation at NYU. Mr. Donnini
is licensed to practice law in Florida. If you have any questions please
do not hesitate to contact him via email [email protected]
or phone at 954-639-4496