What’s Happening With Tobacco Tax — And Where Is It Headed Next?

Source from:  Accounting Today 08/18/2020

Recently, the House Ways and Means Committee approved legislation that would make vaping products subject to the same excise tax as cigarettes. This isn’t the first time tobacco companies have seen a significant shift in taxation, and it certainly won’t be the last. Ever since the first indirect taxes were applied to tobacco more than a century ago, the industry has faced an ever-evolving array of complicated rules, rates and regulatory changes.

While most companies understand the complications these shifts in tobacco tax law can cause, many may remain unaware of just how complex excise taxation is becoming.

First, there's the fact that tobacco is frequently taxed based on volumetric measurements — not just by packs and cartons, but by milliliters and ounces as well. As if those calculations weren’t enough for the vaping industry to contend with, they can vary drastically across states, counties, cities and municipalities.

In many states, for example, an entire e-cigarette starter kit may be subject to excise tax. In others, only the e-liquid is subject to excise tax while the pod or cartridge incurs sales tax. Some jurisdictions might tax vaping devices based on the wholesale prices; others may adopt legislation to tax by millimeter. It's wildly diverse and can be tremendously confusing.

As the number of taxing jurisdictions putting vaping tax laws in place continues to rise, these discrepancies will become even more pronounced.

Meanwhile, in the wake of Wayfair v. South Dakota, selling vaping products online no longer frees manufacturers from the complexities of excise tax on vape and other tobacco products, or OTP. If an e-commerce seller meets economic nexus thresholds and is collecting sales tax, the company must now collect excise tax as well. With nexus varying by state, these implications add yet another layer of complexity.  Enditem