When vaping products first hit the U.S. market in the mid-2000s, they were not regulated or taxed like other tobacco products. In fact, at first, they were largely unregulated and tax-free.

But those times are coming to an end. Today, many states impose vaping taxes on consumers.

One reason Electronic Nicotine Delivery Systems (ENDS) were originally exempted from taxes applicable to cigarettes and other tobacco products (OTPs) was because they were considered a healthier alternative. Cigarette and tobacco taxes are levied to reduce consumption of potentially harmful products while also increasing revenue.

Many people still believe that vaping is better than smoking when it comes to health, but because of the popularity of vaping and vaping products among teens and young adults, a different narrative is emerging. There are concerns that e-cigarettes may motivate young non-smokers to seek nicotine elsewhere (the so-called gateway effect). So while e-cigarettes can help experienced smokers cut down on their cigarettes, they can actually encourage smoking among young people.

Whatever the reason, more and more governments are implementing new regulations and taxes on e-cigarettes, vaping products, and similar products.

New requirements for e-cigarette distributors, manufacturers and sellers

The expanded Prevention of All Cigarette Trafficking Act (PACT Act), enacted in March 2021, requires any business or person selling, transporting, or transferring ENDS in interstate commerce for profit to:

Registered with the Agency for Alcohol, Tobacco, Firearms and Explosives (ATF)

Verify buyer's age when shipping

Comply with state, local or tribal excise tax and reporting requirements

Basically, the revised PACT Act requires e-cigarettes and vaping products to be treated more like traditional tobacco cigarettes.

Are there federal taxes on vaping products?

As of this writing, there is no federal tax on vaping products, but that could change. A first draft of President Biden's 2021 "Build Back Better Act" included a new tax on nicotine used in vaping products, but it was removed from the final version of the 2022 "Reduce Inflation Act."

This was not the case with tobacco, which, according to the National Institutes of Health, was one of the first consumer goods taxed in North America, "first by the British and then by the newly independent republics in the early 1790s." Since the Civil War, the federal government has been Tax tobacco.

Today, federal excise taxes on cigarettes, cigars, chewing tobacco, pipe tobacco, snuff and other tobacco products are administered by the Alcohol and Tobacco Tax and Trade Bureau (TTB). Cigarettes, cigarillos and smokeless tobacco are usually taxed per unit (for example, per cigarette or pack of cigarettes), while larger cigars are usually taxed ad valorem (that is, a percentage of retail or wholesale price).

Do states tax vaping products?

More than 30 states currently tax vaping products: California, Colorado, Connecticut, Delaware, Georgia, Illinois, Indiana (as of July 1, 2022), Kansas, Kentucky , Louisiana, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Utah, Vermont State, Virginia, Washington, West Virginia, Wisconsin, Wyoming, and the District of Columbia.

It's a dramatic change from 2015, when only three states and the District of Columbia imposed vaping taxes.

More states are likely to tax ENDS in the future, as some -- including Alaska, Iowa, Oklahoma and Tennessee -- have already attempted to do so. Some states that already have taxes on vaping products may choose to increase rates in 2023. Kentucky introduced a measure to increase taxes on e-cigarettes and other tobacco products, but the bill did not pass.

Are there local taxes on vaping products?

As of this writing, only a handful of states have local taxes on vaping products.

Alaska and Nebraska do not tax e-cigarettes at the state level, but some jurisdictions have local taxes. especially:

Anchorage Borough, Alaska

Juneau Borough, Alaska

Northwest Arctic, Alaska

St. Petersburg Borough, Alaska

Omaha, Nebraska

In addition to statewide taxes, some jurisdictions in Illinois (Chicago and Cook counties) and Maryland (Montgomery county) impose local vaping taxes.

Alabama, Colorado, Missouri, New York, Ohio, Pennsylvania and Virginia also allow local governments to impose local taxes on vaping products.

E-cigarette tax: details determine success or failure

Due to the varying nature of electronic nicotine delivery systems (ENDS), e-cigarette taxes can be affected by a number of different factors.

Like cigarettes and other tobacco products, e-cigarettes, vapes, and other ENDS are typically taxed on a unit basis or as a percentage of the retail or wholesale price. Each jurisdiction defines tax base percentages slightly differently.

Most states tax vaping products using percentages or units. However, Connecticut, Georgia, Kentucky, New Hampshire, New Jersey, and New Mexico use both approaches: they use units (per pack) for closed vaping products and a percentage of price for open vaping products.

Open vs. Closed vs. Disposable

Unit-based vape taxes can be affected by the type of cartridge used to contain e-liquid: open or closed. Some states tax per cartridge and/or disposable, some states tax per milliliter (or fraction of a milliliter) of e-liquid purchased.

With open containers, users must manually fill the tank with e-juice. The closed containers are filled and there are no traditional tanks that can be refilled, but they are often reusable with single-use cartridges containing e-liquid.

Disposable e-cigarettes are sold containing a consumable vapor product. They are not designed or intended to be reused or refilled and are usually disposed of after use.

All Electronic Nicotine Delivery Systems (ENDS) must be disposed of properly after use.

Nicotine vs. No Nicotine

Some states only tax e-liquids that contain nicotine. Some tax all e-liquid products, even those without nicotine.

For example, nicotine-free ENDS are not subject to the California tobacco product excise tax, while nicotine-containing ENDS are subject to the tax. Note that businesses that only sell nicotine-free ENDS still require a California Cigarette and Tobacco Products Retailer License.

In the figure below, Yes under Tax based on nicotine content means that the tax is only applicable to e-cigarette products containing nicotine; neither nicotine-containing products nor nicotine-containing products are taxed.

Excise tax on products by state:

Status State tax Local tax Tax based on nicotine content Tax base

Alabama No No Not Applicable

Alaska No No Not Applicable

Arizona No No Not applicable

Arkansas No No Not Applicable

California Yes No No % Wholesale Price/% Retail Price

Colorado Yes No No Percentage of Wholesale Price

Connecticut Yes No No Percentage of Unit/Wholesale Price

Delaware Yes No No Unit

District of Columbia Yes No No Percentage of Wholesale Price

Florida No No Not Applicable

Georgia Yes No No Percentage of Unit/Wholesale Price

Hawaii No No Not applicable

Idaho No No Not Applicable

Illinois Yes Yes No % of Wholesale Price

Indiana Yes No No % of Retail Price

Iowa* No No Not Applicable

Kansas Yes No No Unit

Kentucky Yes No No Percentage of Unit/Wholesale Price

Louisiana Yes No No Unit

Maine Yes No No Percentage of Wholesale Price

Maryland* No[3] Yes Not Applicable % of Retail Price

Massachusetts Yes No No Percentage of Wholesale Price

Michigan No No Not Applicable

Minnesota Yes No No Percentage of Wholesale Price

Mississippi No No Not Applicable

Missouri No No Not Applicable

Montana No No Not Applicable

Nebraska No Yes Not Applicable

Nevada Yes No No Percentage of Wholesale Price

New Hampshire Yes No No Units/Percentage of Wholesale Price

NJ Yes No No Percentage of Unit/Wholesale Price

New Mexico Yes No No Unit/Percent of Wholesale Price

New York* No[4] No Not applicable

North Carolina Yes No No Unit

North Dakota No No Not Applicable

Ohio Yes No No Unit

Oklahoma No No Not Applicable

Oregon Yes No No Percentage of Wholesale Price

Pennsylvania Yes No No Percentage of Wholesale Price

Rhode Island No No Not Applicable

South Carolina No No Not applicable

South Dakota No No Not Applicable

Tennessee No No Not Applicable

Texas No No Not Applicable

Utah Yes No No Percentage of Wholesale Price

Vermont Yes No No Percentage of Wholesale Price

Virginia Yes No No Unit

washington yes no no unit

West Virginia Yes No No Unit

Wisconsin Yes No No Unit

Wyoming Yes No No Percentage of Wholesale Price

*Iowa and applicable local select sales and use taxes apply to delivery sales of vapor products and nicotine replacement products.

*Maryland imposes a sales tax on open-air vaping devices and e-liquids containing nicotine.

*New York imposes a supplemental sales tax of 20% on retail sales of vapor products with or without nicotine.

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