States that tax — and ban — vapor products

Updated August 11, 2020.

Electronic cigarettes and vapor products were once touted as healthier than traditional cigarettes, a way to ween smokers off tobacco. As such, they generally weren’t taxed. In fact, the first states to tax vapor products did so almost a decade after e-cigarettes first entered the American market in 2007. Meanwhile, cigarettes taxes increased for the most part — significantly so, in some states.

Now, as reports of lung injuries associated with vaping and even deaths spread across the United States, many states want to discourage the use of vapor products. To that end, some states are imposing new taxes on vapor products and others are banning their sale. Several states have done both.

A tax on vapor products took effect in Washington on October 1, 2019. The rate is $0.09 per mL for accessible containers of solution greater than 5mL, and $0.27 per mL for all other vapor products. It’s paid by the first person in the state to possess the vapor product, which could be the distributor, manufacturer, or retailer.

Businesses in possession of a stock of vapor products when the tax took effect must report their existing inventory. The tax on existing inventory is due no later than January 31, 2020.

Before the new tax took effect, however, Washington Governor Jay Inslee asked the Washington State Board of Health to “use its emergency rulemaking authority to impose a ban on all flavored vapor products, including flavored THC vapor products.” The board did so on October 9, 2019.

The emergency ban took effect October 10, 2019, and will last for 120 days.

Since businesses are liable for the vapor products tax when they take possession of vapor products, the Department of Revenue is allowing them to claim a credit for amounts reported for any flavored vapor product they remove from their inventory. The vapor credit worksheet isn’t available at this writing but will eventually be posted here.

• To be eligible for the credit, businesses must:
• Destroy their inventory of flavored vapor products;
• Return their inventory of flavored vapor products to the manufacturer; or

Ship or transport their inventory of flavored vapor products outside of Washington to a person engaged in the business of selling them, provided the products will be sold.

Businesses may also claim a credit for flavored vapor products sold to the U.S. Government (and certain other entities) between October 1, 2019, and October 9, 2019.

However, “No credit is allowed for sales in Washington after the ban on sales of flavored vapor products took effect Oct. 10, 2019.”

Businesses with a stock of these products have until October 31, 2019, to report the inventory in their possession as of 12:01 a.m., October 1, 2019, and file a Vapor Floor Stock Tax Return.

States are always keeping an eye on opportunities for increasing revenue from taxes. The number of states taxing vapor products is on the rise and includes:

• California
• Connecticut (effective October 1, 2019)
• Delaware
• District of Columbia
• Georgia (effective January 1, 2021)
• Illinois
• Kansas
• Kentucky (effective August 1, 2020)
• Louisiana
• Massachusetts (effective June 1, 2020)
• Minnesota
• Nevada
• New Hampshire (effective January 1, 2020)
• New Jersey
• New Mexico
• New York
• North Carolina
• Ohio
• Pennsylvania
• Utah (effective July 1, 2020)
• Vermont
• Virginia (effective July 1, 2020)
• Washington
• West Virginia
• Wisconsin (effective October 1, 2019)
• Wyoming (effective July 1, 2020)

And like Washington, several states are also temporarily banning the sale of vapor products (or trying to).

• Massachusetts - Governor Charlie Baker instituted an emergency statewide ban on the sale of flavored and non-flavored vaping products (both in-store and online). The ban took effect September 24, 2019, and lasts through January 25, 2020. Additional information.
• Michigan - In early September, Governor Gretchen Whitmer ordered the Michigan Department of Health and Human Services to ban flavored nicotine vaping products. Retailers had 14 days to comply with the emergency rules that were announced September 18. The ban was set be in effect for 180 days; however, on October 15, 2019, a Michigan judge blocked the ban.
• New York - New York’s ban on the sale of flavored electronic cigarettes and nicotine e-liquids was set to begin October 4, 2019. However, the ban was blocked by a New York appellate court on October 3. New York State Health Commissioner Dr. Howard Zucker said this temporary setback “will not deter us from using every tool at our disposal to address this crisis.”
• Rhode Island - A ban on the sale of flavored e-cigarettes took effect in Rhode Island on October 4, 2019. It will last for 120 days, after which it can be extended an additional 60 days.

There’s a lot for businesses in the tobacco and vape industries to track these days, including new taxes on their products. Automating excise tax calculations and returns can help streamline compliance.