E-Medicines - A Future Tax Exclusion for Vapor Products?

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