Tax legislation on the tobacco (and now vape) industry has been changing since the jazz age, and it shows no sign of slowing down — even 100 years later. In fact, with the ise in popularity of vape products and the new legislation built into the 2020 COVID-19 relief bill, tobacco and vape manufacturers, sellers, and distributors might be subject to ore complicated rules and regulations than ever.
Legislators are making a pact to cut down on illicit sales
The biggest legislative hurdle introduced to the tobacco and vape industry is an amendment to the Prevent All Cigarette Trafficking (PACT) Act. While the original purpose of he PACT Act was to cut down on tax evasion and unlicensed sales of tobacco products, the new iteration includes all electronic nicotine delivery systems (ENDS), such as lectronic cigarettes, hookah pens, and vaping devices. Under the amended PACT Act, anyone who advertises, sells, or transports cigarettes or ENDS will have to register with oth the Bureau of Alcohol, Tobacco, Firearms, and Explosives and the tax administrator in the shipping state, with costly fines for noncompliant businesses. Businesses are lso required to file detailed shipping reports and keep meticulous records in the event of audits.
The END of tax rate inequalities
As it currently stands, there is no uniformity in how tobacco and vape products are taxed. Excise taxes for nicotine products vary from product to product and state to state, but he Biden administration is proposing a federal tobacco tax to change that. The Tobacco Tax Equity Act would double taxes on cigarettes and equalize rates on all other obacco and nicotine products to match the new cigarette rate.
New legislation leaves a bad taste in the mouths of vape sellers
If your vape product doesn’t meet the new FDA requirements, or if you can’t provide “robust and reliable evidence” that the potential benefit for adult smokers outweighs the isk to youth, you might not be allowed to market it. The FDA has sent out marketing denial orders for more than 1.1 million flavored ENDS products in an attempt to curb teen aping. This could mean a new burden on vape businesses, since you’ll now need to receive a written marketing order from the FDA to advertise your product.
Avoid going up in smoke
With the growing complexity of federal, state, county, city, and other local taxes, plus the ever expanding list of regulations that the tobacco and vape industry is subject to, it an be difficult to keep up. To avoid costly fines and the headaches that will undoubtedly come with jumping through the new legislative hoops, automation will be key. Our artners at Avalara can help with tax automation tools like Avalara AvaTax for Tobacco, Avalara Returns for Tobacco, Avalara License Management, and more to help you avigate excise and sales tax, business licensing, and meet the new PACT Act requirements. You can learn more here or contact your account executive for more information.
To stay up to date on all things tobacco and vape tax, keep an eye on the Avalara Tax Desk.