Just last year, Pennsylvania passed a draconian new tax on electronic cigarettes. Imposed at the rate of 40% of the retailer’s purchase price, the tax applies to all “electronic cigarettes,” which is defined to mean an “electronic oral device, such as one composed of a heating element and battery or electronic circuit, or both, which provides a vapor of nicotine or any other substance and the use or inhalation of which simulates smoking.” This term is defined to include both (1) a device, as described in the definition above, and irrespective how it is marketed, and (2) any liquid or other substance placed or sold for use in such a device.
Significantly, the Pennsylvania Department of Revenue considers “components designed for use in e-cigarettes” to be taxable as it does “[l]ithium-ion batteries . . . if . . . integral to an e-cigarette device.” In other words, Pennsylvania’s 40% excise tax applies to vaping devices, to vaping liquids, and even to components designed for use with vaping devices, such as batteries or cartomizers. The tax is one of the highest e-cigarette levies in the country, and has the broadest scope.
The new tax predictably led to the demise of many Pennsylvania e-cigarette businesses, and drove sales to the Internet. Fortunately, a new proposal introduced earlier this year (Senate Bill 508) would substantially revamp the tax. The bill would both narrow the class of products taxed and lower the amount of tax. The bill would narrow the class of products taxed by taxing only the consumable portion of an e-cigarette, such as an e-liquid. (Vaping devices would not be subject to the tax, except to the extent that they have a consumable liquid.) Moreover, the tax would be lowered to five cents per milliliter of consumable product. This would make Pennsylvania’s vapor tax with the taxes imposed in Kansas, North Carolina, Louisiana and West Virginia, which tax only the consumable product at a lower rate consistent with the comparative risks of these products.
Stayed tuned for further developments on this legislation.