California’s consumption tax and wholesale tax on e-cigarettes also apply to synthetic nicotine
The common criticism of e-cigarette tax applies: because cigarettes and e-cigarettes are substitutes, it should be logical that the former should levy more taxes than the latter to encourage people to turn to less harmful substitutes. California also imposes a wholesale tax of about 60% on e-cigarette distributors, although customers may not have experienced this burden.
“Most manufacturers who have to levy or exempt wholesale tax decide not to push it to retailers and consumers and eat it,” Stefan didak, an advocate of California tobacco harm reduction (THR), told the media. “Part of the reason is that it is more economical for them to manipulate it. Only the tax on the nicotine part entering the bottle is calculated. The other is for competitive reasons.”
Therefore, he explained that consumers did not feel the actual impact in the state. However, with this 12.5% retail tax, I will certainly feel it.
Thr supporters, e-cigarette manufacturers and consumer rights advocates are already on high alert: a version of the new federal tax proposal circulated throughout Washington in mid September will raise the tax rate of e-cigarettes to make them equal to tobacco, making them more expensive than deadly combustibles. Specifically, the proposed tax per 1000 cigarettes will be increased to $100.66 – electronic cigarette products will be taxed at the same rate, and 1000 cigarettes are equal to 1810 mg of nicotine.
For example, early estimates by critics and tax reformers calculated that the tax on four packs of Juul cigarettes was about $9, while the tax on a pack of cigarettes was only about $2.
As these state and federal taxes are still threatened, California will become one of the states that e-cigarette users can’t afford. Stricter local policies seem to be counterproductive, even if the National Youth e-cigarette smoking rate drops again in 2021: a study published in JAMA Pediatrics found that after San Francisco banned flavoring steam and tobacco products, the city’s high school teenagers are more likely to smoke, and the smoking rate is higher than that of teenagers in other school districts.
However, a less discussed aspect of the new tax puts e-cigarette manufacturers in California under potential legal constraints and shows how the United States will fight THR in all aspects. This is because California’s tax laws typically define tobacco products as including but not limited to products containing, manufactured or derived from tobacco or nicotine – which means that these excise and wholesale taxes explicitly apply to Synthetic Nicotine.
This may offset a loophole that manufacturers have been considering – a loophole that can provide e-cigarette users with a choice rather than turning to a cheaper and potentially higher risk illegal market.
This is a state policy different from the federal government. As the food and Drug Administration (FDA) considers which e-cigarette products to reject and approve through its pre marketing tobacco product application (PMTA) process, many small and medium-sized manufacturers, especially those of flavoring products, have been rejected. Frustrated by the arduous and expensive PMTA process in favor of large companies, some of these manufacturers are turning to Synthetic Nicotine – because it is not extracted from tobacco and is therefore considered outside the current jurisdiction of the FDA.
The agency defines tobacco products as any products made from or derived from tobacco for human consumption, including any components, parts or accessories of tobacco products, which seems to exclude Synthetic Nicotine.
In short, California’s policy may weigh a loophole that manufacturers have been considering, an illegal market that can be cheaper and possibly more risky than turning to other options.
Apart from taxes, Synthetic Nicotine is expensive because the process of producing it on an industrial scale is still difficult. It is a last resort for manufacturers to stay in the enterprise. However, the new tax may create a situation where e-cigarette manufacturers in California increasingly use Synthetic Nicotine to avoid the FDA’s line of sight, and may have to withdraw from this alternative.
“Unfortunately, I have observed that some electronic cigarette oil manufacturers in the state have expressed their intention to adapt to Synthetic Nicotine and mistakenly believe that it is completely unregulated and taxed,” didak said. “No one wants to see the power of the California Department of revenue and expense management over small businesses because it provides an easier law enforcement mechanism. Just like in the era of prohibition, those caught are more because of tax evasion.”
“The war against e-cigarettes is rapidly expanding, and all e-cigarette products – whether they contain sSynthetic Nicotine or just stand-alone devices intended to be used with CBD or thc – will be in a hurry to pass prohibitive and restrictive legislation.”
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