Background: In November 2016 voters in California approved Proposition 56 which added electronic cigarettes to the list of tobacco products subject to excise tax. That provision became effective on 1 April 2017.
Among the new products subject to the tax are:
- nicotine that is intended for human consumption (sold with or without a nicotine delivery device); and
- nicotine delivery devices (including, but not limited to, electronic cigarettes, e-cigars, e-pipes, vape pens and e-hookahs) sold in combination with substances containing nicotine.
Nicotine delivery devices sold independently and not in combination with any liquid or substance contain nicotine will not be subject to the tobacco products tax.
Among the purposes of the tax increase identified by the sponsors of Proposition 56 is “discouraging individuals from using cigarettes and other tobacco products, including electronic cigarettes.”
Determination of rates: The tobacco products tax rate is applied to the wholesale cost of tobacco products at a rate determined annually by the California State Board of Equalization (BOE). The rate of the tobacco products tax is equivalent to the combined rate of the taxes applied to cigarettes.
The BOE initially determined as of 1 April 2017 that tobacco products tax would be imposed at a rate of 27.3% of the wholesale cost.
Proposition 56 also increased the cigarette excise tax from $0.87 to $2.87 per pack of 20 sticks. On 1 July 2017, the BOE raised the tax rate on tobacco products, including electronic cigarettes and other nicotine delivery devices sold in combination with nicotine, to 65.08% of the wholesale cost, which reflects the new higher tax rate cigarettes.
Effective 1 July 2018 the California State Board of Equalization recalculated the rate of tax on other tobacco products, including e-cigarettes, down to 62.78% of the wholesale price.