Louisiana's New Vapor Product Tax - A "Juic-E" Exclusion

Effective August 1, 2015, Louisiana added Vapor Products to its wholesale tobacco tax regime. Specifically, the new tax imposes tax upon the sale, use, consumption, handling, or distribution of tobacco products. Prior to the new law, the tax was levied on cigars, cigarettes, and smoking and smokeless tobacco. But now vapor products are defined broadly in the revised statute to include:

“any noncombustible product containing nicotine or other substances that employ a heating element, power source, electronic circuit, or other electronic, chemical or mechanical means, regardless of shape or size, used to produce vapor from nicotine in a solution or other form.”

The statute further includes all forms of electronic cigarettes, cigars, etc., underneath its definition of “vapor products.” It’s clear that the intent in the construction of this revised statute was to cover all vapors regardless of any future technological or design variations.

Perhaps it is in anticipation of the legalization of marijuana that the statute makes sure to include in the definition of vapor products the fact that these products may be used for both nicotine as well as “other substances.” It appears that the legislature, in adding this broad definition of vapors to the statute, made sure not to exclude some of the popular products commonly used to smoke marijuana. However, the statute, while stating that these items are taxable, does not impose any actual tax on them.

In fact, the part of the statute that actually imposes the tax noticeably only extends to products containing nicotine. The specific tax is spelled out in §841:

a five cents per milliliter tax of “both consumable nicotine liquid solution” and “other material containing nicotine that is depleted as a vapor product is used.”

Of course, this makes perfect sense in a state where marijuana is still illegal. You can’t tax something that can’t be sold in the first place.

But what is interesting is that such a narrow construction of the statute leaves many liquid items nontaxable despite the fact that they are sold for use in a broadly defined vapor product. The best examples are “vape snacks” or “e-juices” that are flavored but contain absolutely no nicotine. Sometimes they are smoked alone but often they are added to liquid nicotine to make custom flavors. Online they are explicitly advertised as liquids for use in vapor products but under the new statute in Louisiana, they are completely nontaxable.

Further in support of the nontaxable status of “e-juices” is the fact that the statute focuses entirely on tobacco products. Although within the definition of vapor products, there is no mention of tobacco, the nicotine that is mentioned is most commonly derived from actual tobacco. While synthetic versions of nicotine exist, they are widely considered unsafe. Therefore, every product under the statute contains or is used to facilitate the smoking of tobacco.

For now, the growing market of “e-juices” remains nontaxable. As a result, businesses may begin selling liquid nicotine and “e-juice” separately to reduce the amount of tax due. Already, there are wholesalers who sell “unflavored liquid nicotine” and “flavored e-liquid” separately. Under the new Louisiana statute, only one of those would be taxable.

It’s never good news for a Taxpayer that the government is adding new taxes to an industry already burdened with heavy taxes. However, the silver lining is that not all vapor products are taxable. Despite a broad definition of “vapor product,” the actual tax is only on the liquid nicotine that is commonly used inside of them. For now, a huge portion of vape business sales remains excluded from tobacco tax.

Of note, in addition to wholesale distributors, Louisiana's retail dealers may also be liable for the tax. This will force Louisiana to administer thousands of dealers, rather than the few hundred they have been responsible for in the past. Retailer dealers are likely unfamiliar with this type of tax return. If this is you then you may want to speak with an experienced wholesale tobacco tax consultant. Please call today for a free consultation.

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.