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Most Americans have by now heard of the Biden Administration’s Build Back Better Act, which was recently passed by the House and promptly shelved by the Senate. Most Americans also know that, among other things, the Build Back Better Act would have imposed a minimum tax on the profits of large corporations, that it sought to reduce the childcare cost burden on most American families, and that it contained a large tax credit for new electric vehicle purchases.
At just under 2,500 pages, what you may have missed are the major changes to the way in which the federal government can assess and collect new taxes on manufacturers and importers of nicotine – even synthetic nicotine – destined for use in vapor products (or just about any product, for that matter). You will find that provision appropriately titled “Imposition Of Tax On Nicotine For Use In Vaping, etc. – .”
If you happened to have missed the sections dealing with new tax on nicotine, don’t beat yourself up, they begin more than 2,000 pages into the bill.
So what, exactly, is this new nicotine tax – and how much would it be if passed?
Basically, what the bill does is to define “taxable nicotine” as now being included in the federal tax provisions for “tobacco products” – meaning that liquid nicotine, including synthetic nicotine, is now subject to the same tax as certain types of cigarettes. These parts of the bill are explicit – this new definition of “taxable nicotine” means the federal government wants tax revenues from nicotine destined for vapor products the same way it has long since demanded taxes on more traditional tobacco products. This tax will be assessed by reference to the existing tax code and the tax structure for certain types of cigarettes. Specifically, as currently written, the tax is $50.33 per 1,810 milligrams of nicotine.
By potential implication (perhaps even likely implication), the new definition would also mean that manufacturers and importers of nicotine will fall into the regulatory frameworks which currently apply to manufacturers and importers of traditional tobacco products – among other burdens, this means bonds, permits, tobacco user fees, and monthly Food and Drug Administration (FDA) reporting obligations.
Many participants in the industry have been wondering for some time now how the government would treat the increased industry reliance on synthetic nicotine. The relevant provisions in this bill represent the likely first step of federal oversight of synthetic nicotine.
Wherever you are in the vapor business chain, what these provisions of the Build Back Better Act mean for everyone is higher costs – tax related costs and administrative costs associated with what is likely to be heavier regulatory burdens. For manufacturers and importers of nicotine, this is a direct tax, for those further down the chain, this is an indirect increase in supply costs.
Everyone in the vapor industry (and nicotine manufacturing or importing, whether natural or synthetic) should be aware of these aspects of the bill. While there is no guarantee the bill will be resurrected by the Senate and become law, vapor industry business should be familiar with the provisions in the event negotiations over the law do sputter back to life.
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