Are Tobacco Cessation Products Subject to State Excise Tax?
What constitutes a tobacco product has drastically changed over the years as new items and technologies come to market. The sale of e-cigarettes, vapor products, smokeless tobacco, alternative nicotine products, blunt wrappers, and other items all create new questions about what is subject to state excise tax. You can add tobacco cessation products to the list as this term’s meaning in commercial and in medical contexts can be entirely different and lead to confusion for distributors and retailers over their taxability in a state. Get the latest on how state excise taxes apply to this category of tobacco-related products and avoid the surprise of penalties and interest that can come from noncompliance.
What Are Tobacco Cessation Products?
Tobacco cessation products refer to a broad category of items meant to reduce or replace the use of traditional tobacco products. They might or might not contain nicotine and could refer to products, such as:
- Skin patches
- Chewing gum
- Lozenges
- Tablets
- Nicotine sprays or inhalers
Whether an item is a tobacco cessation product is a complex medical and legal question because of the potential for advances in technology and new evidence on a particular product’s ability to help people quit smoking. For example, a 2020 report from the Surgeon General noted how e-cigarettes are continually changing and used in multiple ways, which made it hard to state generalizations about their use as a tobacco cessation product. The report further stated that current research is uncertain on the use of e-cigarettes for smoking cessation and scientists are still learning about long-term health effects.
Are E-Cigarettes and Vapor Products a Type of Tobacco Cessation Product?
The Food & Drug Administration (FDA) does not currently consider e-cigarettes and vapor products as approved tobacco cessation products. However, recent studies in this area are constantly expressing new datapoints and opinions that could shape future policy on the use and classification of e-cigarettes as a smoking cessation product.
Are “Alternative Nicotine Products” the Same as Tobacco Cessation Products?
Alternative nicotine product is another broad term that is closely related to, but distinguishable from, tobacco cessation products. They are similar in that both products generally refer to items that do not contain tobacco. However, an alternative nicotine product’s meaning could include items like vapor products or e-cigarettes, while an FDA-approved tobacco cessation product does not. Additionally, not all tobacco cessation products contain nicotine, which is another issue that could affect a product’s tax status. It’s important to read how state laws and regulations define alternative nicotine products for the purpose of being subject to excise tax.
FDA-Approved Tobacco Cessation Products Are Not Usually Subject to Excise Tax
As new tobacco, smoking, and nicotine products come to market, state legislatures and revenue departments are continually updating their rules for application of excise tax. Most notably, the rise of excise taxes on e-cigarettes and vapor products that exist in over half the United States. States that impose excise tax on certain alternative nicotine products, such as e-cigs, generally exclude FDA-approved tobacco cessation products from the tax. For example, the states of Illinois and Maryland both expressly exclude FDA-labeled tobacco cessation products from their definitions of electronic cigarette or tobacco product.
The Takeaway on Excise Tax for Sellers of Alternative Nicotine or Tobacco Cessation Products
The biggest issue for sellers of e-cigarettes, alternative nicotine, or tobacco cessation products is to know how each state where you distribute defines and taxes these items. It is not enough to rely on the language from an item’s packaging, marketing, invoicing, or contracting. Rather, you need to understand how the relevant agencies, such as the state revenue department and FDA, define your products being sold. For further guidance on your complex questions about the excise taxes on new tobacco, smoking, or nicotine products, consider meeting with one of our tax consultants today. We offer a variety of services to help distributors and retailers with their tax needs, including reporting strategies, audit defense, assessment appeals, and refund claims.