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E-Cigarettes & Vaporizers: What Smokeless Shops Need to Know About Sales Tax

  • Sep 26, 2015 | Stephanie Faris

Electronic cigarettes have exploded in popularity in recent years, doubling in use between 2010 and 2013. Experts are still actively locked in battle over whether the devices are safer than cigarettes, but in the meantime, new stores continue to open across the country.

For e-cigarette store owners, the growing popularity of the devices is good news. But navigating uncharted territory has been a challenge, especially where sales tax is concerned. Like tobacco cigarettes, electronic cigarettes have been on legislators’ radar recently, as they seek ways to discourage their use through additional taxes that are tacked onto the sales tax for each purchase.

States with Vape Tax Legislation

At this point, 22 states have introduced legislation that will tax vaping hardware, e-cigarettes, and the liquid used in electronic cigarettes. Arizona, Arkansas, Indiana, Kentucky, Montana, Nevada, New Mexico, and Virginia saw the legislation shot down before it could get far, but there are still 15 states with legislation pending.

Each piece of legislation is dramatically polarizing. There are the anti-smoking advocates who push for new laws to be passed and celebrate each promising piece of news. Then there are the pro-vaping advocates, who point out the negative impact these taxes could have on the industry. In addition to the money vape shops bring to local economies, there are also many people who insist the devices have allowed them to finally kick tobacco after years of trying.

Pending Legislation

For e-cigarette shop owners, the consequence of a tax could be disastrous. Some states aren’t simply proposing a 1 percent bump in the existing sales tax on the products. Instead, the tax could drastically increase the price. In Washington State, for instance, lawmakers are proposing a 95 percent tax on e-cigarettes and their supplies.

Many states are opting to simply expand their existing cigarette taxes to include e-cigarettes and their accessories. The Council of the District of Columbia recently approved a bill that will tax the products at an astounding 70 percent, covering both vaping devices and the liquid used in them. This change is designed to match the tax on tobacco cigarettes across the state.

Local Taxes

Taxes can also be passed on a more local basis. The Matanuska-Susitna Borough in Wasilla, Alaska, passed a 55 percent tax on e-cigarettes earlier this year, matching the borough’s stance on tobacco products. The area has the ninth-highest tobacco tax in the country when local and state taxes are combined. Customers in the area pay a $2.28 tax per pack of cigarettes on top of the two-dollar sales tax per pack charged by the state.

If a local jurisdiction does opt to pass its own tax, it’s important that they alert the residents of that community to the details of the law beforehand. Matanuska-Susitna’s mayor chose to veto the tax after the fact, citing public outcry in response to the measure. According to the mayor, the legislation was passed without the knowledge of local business owners, who say they were unaware that the legislation referred to e-cigarettes.

For tobacco shops, the best-case scenario is that products will remain as they currently are in order to keep prices low. While vape shops can survive high taxes, it’s possible that new taxes could force the prices to rise to a point that they become unaffordable to many smokers. As highly-taxed cigarettes have shown, however, customers are often willing to continue to pay for nicotine, even when prices double.

Image Attribution: Ecig Click

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Stephanie Faris
Avalara Author Stephanie Faris