Georgia to tax vaping products in 2021

Cigarettes have been subject to a federal excise tax in the United States since the Civil War, and every state has had a state-level cigarette tax since 1969. But there’s no federal excise tax on vaping products, and only about half of the states have state-level vaping taxes. Come January 1, 2021, Georgia will join them.

As with tax rates for cigarettes, excise tax rates for vaping products vary greatly from state to state: The rate is 95% of the wholesale price in Minnesota, 5 cents per milliliter in North Carolina, and 10% of the retail price in New York. Several states levy different rates for different methods of delivery; for example, the rate is 9 cents/ml for open tanks in Washington, but 27 cents/ml for closed cartridges or pods. Some states also add a sales tax on top of the excise tax.

Georgia Senate Bill 375 (Act 483) imposes an excise tax on vaping products, with different rates for closed and open systems:

• Consumable vapor products in a closed system: 5 cents per fluid milliliter
• Consumable vapor products in an open system: 7% of the wholesale cost price (excluding allowances or discounts)
• Single-use vapor device containing a consumable vapor product at the time of sale: 7% of the wholesale cost price (excluding allowances or discounts)

Closed systems are prefilled and sealed by the manufacturer. They’re not designed to be refilled and generally have higher nicotine levels. Open systems refer to any method, other than a closed system, used to contain a consumable vapor product. Consumers generally can refill the liquid and adjust nicotine levels with open systems.

The bill also defines many nicotine, tobacco, and vaping products. For example, a “consumable vapor product” is “any liquid solution, whether it contains nicotine or not, that is intended to be heated into an aerosol state and inhaled by an individual,” including e-juice, e-liquid, vape juice, and prefilled cartridges.

Before acquiring products subject to the excise tax in Georgia (i.e., alternative nicotine products, cigars, cigarettes, loose or smokeless tobacco, or vapor products), vendors must “register with the commissioner as a responsible taxpayer subject to the obligation of maintaining records and making reports in the form prescribed by the commissioner.” Failure to register as required may lead to a penalty of $25 to $250, in addition to the tax due, plus other additional penalties.

The commissioner may issue a single license for all activities and products or require a separate license for each business activity and product. Regardless, the total licensing fee for the location is to be the same, except for an additional fee of $10 per year for any dealer, distributor, importer, or manufacturer license for vapor products.

The excise tax is to be collected and paid through stamps in a manner to be determined. The commissioner will sell the stamps to licensed distributors at a discount (2% to 8%) of the value of the stamps based on a bracket system. See the text of SB 375 for additional details.

Finally, SB 375 makes it unlawful for any person to knowingly sell or barter any cigarettes, tobacco products, tobacco related objects, alternative nicotine products, or vaping products to any individual under the age of 21. It also makes it unlawful for anyone under the age of 21 to purchase these products. Currently, the legal age to buy cigarettes, vaping products, and related products in Georgia is 18. 

When they first emerged, electronic cigarettes then vaping products were touted as a healthier option to traditional cigarettes and tobacco products, especially if “used as a complete substitute for regular cigarettes and other smoked tobacco products.” As a healthier choice, they weren’t taxed.

Yet today, the Centers for Disease Control (CDC) considers them unsafe for youth, young adults, pregnant women, and “adults who do not currently use tobacco products.” As that view spreads — and federal and state tobacco tax revenue decline — taxes on vapor products are becoming more common. In 2020 alone, at least six states imposed new taxes on e-cigarettes and vapor products.

With 43 states and the District of Columbia now taxing remote sales through economic nexus laws, out-of-state distributors and retailers of tobacco and vapor products are facing increased tax obligations. Automating tax compliance can help optimize and improve compliance.