E-cigarettes are in the state tax news again. In an effort to increase state tax, several states have been passing legislation to classify e-cigs as tobacco products. Now, another state, Minnesota, has jumped on board.
As a product of the new legislation, which goes into May 2019, Minnesota taxes “nicotine solution products.” Under the law, which will expire at the end of 2019, any cartridge bottle, or other package that contains nicotine that is in a solution to be consumed through a heating element, power source and electronica circuit is a table tobacco product. Effective 2020, all of those products will be taxable, except non-tobacco nicotine will be in effect in 2020 along with numerous other electronic tobacco products.
The tax will be applied at a rate of the staggering 95% of the wholesale price. The tax is imposed on the sale, use, or distribution of liquid nicotine within Minnesota by a distributor or wholesaler to a retail dealer or consumer. Distributors and wholesalers who sell liquid nicotine at retail or otherwise use the liquid nicotine are also required to pay a compensating use tax at the same rate.
Taxation methods of vapor products vary across states and localities as some tax a percentage of the wholesale value while others tax per unit or milliliter of e-liquid. It will be interesting to follow other states that continue to jump on the bandwagon of taxing e-cigarettes and e-liquids to boost their revenue.
About the Author: 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, 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