The FDA’s deeming regulations have predictably set off a chain-reaction on the local and state levels; by classifying vapor technology as “tobacco products,” the FDA invited other regulatory bodies to likewise regulate vapor devices and e-liquids in much the same way as cigarettes. California, often characterized as the capital of the vape industry, has recently become regulated by the Board of Equalization (BOE) and, aside from a tax rate that increased to 65 percent as of July 1, these regulations have implications for any vape company doing business in California.
Vape companies are being inundated with compliance obligations and threats to our very capacity to meet the needs of consumers. Since it appears there is ample confusion on the part of both newly-regulated businesses and the BOE itself, here is a basic overview of some of the new requirements.
The BOE began enforcement of permit and license requirements of vapor businesses in California as of April 2017 (and for retailers as of January 2017). The different types of licenses available are: Retailer, Wholesaler, Manufacturer/Importer, and Distributor; license fees apply and require annual renewal. Whether your business structure requires you to secure one or more of these licenses, it is necessary to also obtain a Seller’s Permit; some licenses additionally require the establishment of corresponding accounts with the BOE. If you have not yet done so already, please make it an urgent priority to register with the BOE online. While the BOE does not seem to have a policy of retroactively penalizing now-compliant companies, if your business is unregistered and the BOE becomes aware that you are manufacturing or selling vapor products, there can be serious consequences, including heavy fines and seizure of inventory.
Please note that registered manufacturers are only permitted to sell untaxed vapor products to registered distributors (not to registered retailers) and it is at the first point of sale in California that the tax must be applied. The distributor can then sell tax-paid vapor products to retailers or other distributors.
2. Remission of Taxes
The tax rate on vapor and tobacco products more than doubled as of July 1 of this year, from 27.30% to 65.08% of the wholesale price or production cost. Currently, only nicotine-containing e-liquids and devices sold in combination with nicotine-containing e-liquids are defined as tobacco products and subject to the tobacco products tax, however retail licensing requirements apply to the sale of electronic cigarettes whether or not devices are sold in combination with nicotine, as well as to the sale of nicotine-free e-liquids.
Please note that an online retailer based outside of California but selling to consumers within California is also required to both pay taxes on the products sold and to hold a valid Tobacco Product Distributor’s License issued by the BOE. California retailers purchasing untaxed vapor products across state lines must also secure the Distributor’s License and are responsible for the payment of the tax.
The BOE is conducting routine inspections of vapor businesses and there are a few important points to note.
• If the BOE comes to your place of business, they must show valid ID demonstrating their legitimacy and will also request ID.
• The BOE agents will only deal with their first point of contact upon entering your establishment, so it’s incredibly important that all of your employees are aware of correct procedures and the location of required documents.
• Most notably, the BOE will request to see 12 months of invoices as well as verification that taxes have been paid. They recommend that all of these files are stored in an easily accessible folder, the location of which all employees are aware. Your business may be issued a citation if upon arrival the requisite files are not available for viewing.
• The BOE is authorized to inspect storage and secured areas.
• The BOE will look to ensure that all licenses/permits are posted and current.
• BOE representatives at a retailer’s seminar advised that they try to issue a warning citation first, before taking more severe disciplinary action.
4. Invoice and Reporting
There are specific invoice and corresponding reporting requirements for each type of license, which you can find more information about at boe.ca.gov. Details are disbursed with the acquisition of the licenses.
Manufacturers and distributors have monthly reporting requirements, while the seller’s permit entails quarterly reporting requirements.
Invoices between vapor businesses should include the following information:
• Date of purchase
• Itemized list of purchased items (for example, e-liquids must include the flavor name, nicotine level and bottle size) and sales price
• Distributor and Retailer’s name, address, and license numbers.
• Amount of excise tax paid; a distributor may use the statement “All California cigarette and tobacco product taxes are included in total amount of invoice.”
• Especially for retailers, it is advised to keep segregated folders of invoices from before and after the law went into effect. One of the BOE representatives verbally advised that vape retailers with prior inventory on which taxes were not paid may continue to sell that inventory, and this is where the segregated records come into play.
Wholesalers and distributors may participate in an online seminar on responsibilities, while in-person seminars are available for retailers around the state. SVBS
*Note: None of the information in this article qualifies as legal advice. Please consult with a qualified lawyer when making business decisions related to BOE compliance.
Sheerlie Ryngler is the Director of Operations and Creative Director for Vape Organics, the first certified organic e-liquid line. A native of Los Angeles, Sheerlie has traveled extensively, receiving her BA in International Relations and MA in Conflict Resolution. She has been a passionate activist for a number of causes around the world; for almost two years Sheerlie has focused her attention on the vape industry and believes that standards of excellence and commitment to progress are crucial to ensuring its continued success. You may contact Sheerlie at [email protected] or visit her website at www.pureorganicvapors.com.