California Vape Taxes
This next installment of the Tax and Vice blog will provide a brief rundown of what tobacco and vape retailers in California (such as liquor stores, smoke shops, and convenience stores) need to know about state and federal tobacco taxes. Tobacco is subject to both federal and state (CDTFA) excise taxes. While retailers in California are not directly responsible for paying excise taxes on tobacco to the CDTFA, retailers who sell tobacco products in California still must be aware of the special tax rules that apply. For example, California tobacco retailers do have to pay the California Electronic Cigarette Excise Tax (CECET) on vapes and electronic cigarettes.
Retailers generally do not pay excise taxes on tobacco. Tobacco distributors pay state excise taxes on tobacco and tobacco manufacturers pay federal excise taxes on tobacco. Tobacco retailers must purchase tobacco that is stamped from a tobacco distributor or tobacco wholesaler, i.e., tobacco upon which a tobacco distributor paid excise taxes.
Retailers selling vapes or electronic cigarettes are responsible for paying CECET taxes. Retailers that wish to sell vapes or electronic cigarettes must register for a permit with the CDTFA even if they already have a permit to sell tobacco products. The CECET tax is 12.5% of the purchase price. Sales tax is also applicable and must be reported and paid. The example below illustrates how to calculate the CECET and California sales tax for a hypothetical sale in a jurisdiction with an 8% sales tax.
Cost of vape: $20.00
CECET (12.5% of $20.00): $2.50
Sales tax (8% of $20.00): $1.60
Total Sales amount: $24.10
Retailers of tobacco are required by the CDTFA to keep invoices of tobacco products purchased for at least four years. Tobacco retailers are also required to store, on their premises, the last 12 months of tobacco invoices and present those invoices for inspection on demand. A tobacco retailer can be subject to fines and other sanctions if they do not have the last 12 months of invoices on premises. For example, the retailer may be subject to sanction if the invoices are at the owner’s home or some other location other than the premises. Federal law has similar record retention requirements for retailers and all other dealers of tobacco products.
Tobacco and vapes, like many other tangible products, are subject to sales taxes. Retailers of tobacco and vapes must file sales tax returns just like every other retailer. They must keep thorough and accurate records of their sales in the event they are audited. A Point of Sale (POS) system is virtually a must for most retailers.
RJS LAW helps retailers of tobacco and virtually every other type of product with IRS, CDTFA, TTB, and other tax audits. Reach out to us if you have any questions for us regarding tax planning, tax compliance, or tax audits.
Written by Joseph Cole, Esq., LL.M.