How to Prepare for Hawaii’s New Excise Tax on Vapor Products
Hawaii became the most recent state to enact excise taxes over vapor products this year with passage of SB 975, and the state joins a list of 30 other states plus D.C. to have a similar tax. Now is the time for manufactures, importers, distributors, retailers, and others to learn how this tax could apply to their sales or operations. I cover those details below with answers to other important questions on Hawaii’s electronic nicotine delivery systems (ENDS) tax.
The Important Details from Hawaii’s SB 975 Regarding Vapor Products
Hawaii’s governor signed SB 975 on June 6, 2023, which may leave your business scrambling to determine what compliance measures you need to take to administer and report on this new excise tax. The following sections should provide clarity on the key contents of SB 975 that amends Chapter 245 of the Hawaii Revised Statutes (HRS).
How Much Is Hawaii’s New Tax on E-Cigarettes?
The tax on electronic smoking devices and e-liquids is 70 percent of wholesale price. For sales not made at wholesale, the HRS defines the wholesale price to be the average price of sale made by a person with substantial sales in the month preceding the accrual of tax, or, in all other cases, the average price of sales to retailers of like products in the same county in the month preceding the accrual of tax.
When Do Hawaii Businesses Need to Start Collecting Excise Tax on Vapor Products?
The tax is effective starting January 1, 2024, and will apply to covered vapor products and liquids that wholesalers or dealers sell, use, or possess on or after that date. This means the excise tax reporting and payment will begin on February 20th along with other Hawaii monthly tobacco product tax returns.
What Vapor Products Are Now Subject to Hawaii’s Excise Tax?
SB 975 amends the definition of tobacco products to include “electronic smoking devices” and “e-liquids.” The bill defines electronic smoking devices as anything that delivers aerosolized or vaporized substances to a person through inhalation. The definition explicitly names electronic cigarettes, cigars, pipes, vape pens, and hookahs as items that qualify as an electronic smoking device.
Does It Matter if Your E-Liquids Sold in Hawaii Contain Nicotine or Not?
The Hawaii excise tax on vapor products also applies to e-liquids, which the bill broadly defines as any liquid or substance designed or intended for use in an electronic smoking device. This includes substances regardless of if they contain nicotine or not and regardless of how they’re packaged.
Do Hawaii E-Cigarette Dealers and Retailers Need New Licenses?
If your business sells e-cigarettes and vapor products in Hawaii, then it will need the same licenses required for those who sell other tobacco products. If you already possess a license or retail permit, then you shouldn’t need to apply for a new license. However, retailers may need to update their permit information with the Hawaii Department of Taxation to notify the administration that you sell electronic smoking devices or e-liquids and identify the location(s) where they are sold or stored.
Steps to Take to Prepare for Hawaii’s Vapor Products Tax
As January 1, 2024, draws closer, now is the time to take the necessary actions to address your businesses compliance needs with Hawaii’s excise tax. Consider the following measures and how they may apply to your operations:
- Review current and future inventory to determine if you will be selling taxable electronic smoking devices and e-liquids in 2024.
- Determine the best way to purchase, package, and sell these items for optimal tax savings.
- Prepare your cash flow for the initial tax payment due on the taxable e-cigarettes and vapor products in your possession that will accrue on January 1, 2024.
- Review your dealer licenses or retailer permits needs as well as any updates you need to make to legally sell e-cigarettes in Hawaii in 2024.
With any other questions about how excise taxes on e-cigarettes and vapor products will impact your operations, consider meeting with our tobacco tax professionals today. We’re here to make sure you don’t pay more excise tax than you owe and maintain compliance with the tobacco regulations governing your tobacco and e-cigarette sales.