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California April 1st 2017 Tobacco Tax

We Will Keep Updating the information with new posts once the state gives more clarification.

 

Message from Cosmic Fog Vapors

To our valued California customers,

As you hopefully are already aware, starting April 1st all liquid nicotine (E-Liquid) products being sold into the state of California will fall under California tobacco product’s tax. There are many important things you must know as a business owner to make sure that you are ready and compliant with this new tax code as to not find yourself being liable for selling untaxed tobacco products. Cosmic Fog, through our position on the board of the California Smoke Free Organization has been negotiating with the Board of Equalization since the passage of prop 56 to make these new laws as least burdensome as possible for you.

RETAILERS: Starting April 1st there are three main guidelines you must follow on all of the E-Liquid products you carry.

You must obtain a tobacco products retailer license from the state of California.

You may only buy nicotine containing E-liquid products from licensed California tobacco products distributors, wholesalers or manufacturers. You must receive and file a copy of every vendors license and keep on file while that product is on your shelf and maintain those records for a period of four years.

Every product you purchase from a licensed channel must come with an invoice that includes the distributor/wholesaler/manufacturer’s license number with a separate line item showing the exact rate and total amount of the tax being charged on your order. You must pay this tax on every order and maintain these as records for a period of 4 years.

What is most important to remember here is that all tax enforcement will be done at a retail level. Starting April 1st BOE enforcement agents will be entering your shop and asking you to show all of the documentation required for all of the products on your shelf. If you do not have this documentation, you as a retail license holder will be held liable.

In an effort to prevent all confusion and offer the maximum amount of security to our valued customers, Cosmic Fog with be instituting a new policy starting April 1st. After April 1st, every bottle we sell into the state of California whether it be to a retail shop or to a wholesaler buying tax paid inventory to resell into CA, each and every bottle will be labeled with a CA TAX PAID Cosmic Fog sticker complete with our license number. This gives you an extra layer of protection when buying inventory from any sources that the merchandise is compliant. After April 1st you should never receive a bottle of Cosmic Fog, Liquid State or Next Day Vapor Products that does not have this tax label. Your existing unlabeled stock will still be okay to sell as long as you can show invoices and payment records that it was purchased before April 1st. At this time BOE has no plans to collect a retroactive floor tax.

WHAT IS THE TAX RATE?
This is the area that is going to most effect your day to day business operations. The amount of the tax is a percentage off of the price of the FIRST point of sale into California. California’s OTP tax is written in a way to directly benefit the companies that manufacture in the state of California. For these companies (such as us) they are allowed to carry BOTH a manufacturers as well as a distributors license. The board of equalization allows manufacturers to sell from their manufacturing side to their distribution side at the cost of manufacturing, making this the first point of sale in California.

For example, if you order 1 bottle from us at a price of $10, Cosmic Fog sells that bottle from Cosmic Manufacturing to Cosmic Distriubtion at manufacturing cost plus any other costs the BOE requires be factored in. So if we assess the cost of manufacture at $1.00 per a unit, each bottle sold into California will carry a 27.3 cent tax. Making your total cost for the one bottle $10.27. At this time we are awaiting an acceptable cost of manufacturing to base these figures off of from our Tax attorneys and expect the tax on a 30 mL unit to fall between $0.30-$0.40 and the tax for a 60 mL unit to fall between $.55-0.65.

EXAMPLE 2, NON CA MANUFACTURERS/OUT OF STATE DISTRIBUTORS

Companies located outside of California CAN obtain a CA tobacco products distributor license to legally sell into the state of California. However, what is most important to remember is that the CA tax is based off the first point of sale into CA. If an outside distributor or company is selling untaxed product into the state of CA then the first point of sale will be the price charged to you. Meaning on that same sale of 1 bottle for $10 the tax will be based off of that $10 amount bringing the taxable amount to $2.73 and your total price to $12.73.

Also please note that the tax rate of 27.3% is expected to change in July to an estimated 68% raising our the taxes to be collected on every unit sold into CA.
Please contact us if you have any questions about bringing your business to compliance or if we can offer any support going forward. As always we will take every step to protect your business and be your go to source on all matter related to regulatory, tax and anything facing the future of our industry.

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