Just as the internet had changed the game for many businesses over the past few decades, new products are continuing to shape age-old industries throughout the country. Anyone who drives around in his or her respective town can routinely see the increasing popularity of vape shops. As vapor products become more and more popular, states have more to gain by taxing them, which is exactly what the nation’s trend is.
As of January 1, 2016, four states and Washington D.C. are taxing vapor products. Those states currently include Minnesota, North Carolina, Louisiana, and Kansas. States fal linto two main camps when taxing vapor products – volume or price. For example, Washington D.C. and Minnesota tax vapor at the rate of 70% and 95%, respectively, of the wholesale price. Conversely, Kansas, Louisiana, and North Carolina tax the product based on mL and the tax ranges from 5 cents to 20 cents per mL
In 2015, at least 25 states proposed or considered legislation to jump on the vapor tax bandwagon. In addition, several localities including Montgomery County, Maryland and the infamous Cook County, Illinois, attempted to tax the products as well. It is clear that the national trend is heading towards the heavy taxation of vapor products, mirroring their perceived tobacco and cigarette cousins.
In 2016, Hawaii joined the taxing party with respect to vapor products. As of March 2016, SB 2691, is still looming in Hawaii. If it passes, it will impose a tax at 80% of the wholesale price of vapor products. This will almost double the price of such products at the wholesale level, which will eventually end up significantly affecting vapor users.
While on one hand, the increased tax revenue for states seems to be the primary motive. Some critics, however, question the logic behind taxation a product with unknown health consequences. Furthermore, aggressive tax rates often induce wholesalers and consumers to turn to black markets to avoid taxation. Such aggressive tax rates also lead to challenges to escape taxation as well. It is clear that taxing vapors is the trend, however, it is likely that the aggressive position of states will lead to problems.
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.