Lena Savoie
California imposes various taxes on specific goods and services, including tobacco and alcohol. The state's tax system includes special taxes and fees, such as the Alcoholic Beverage Tax and the California Electronic Cigarette Excise Tax (CECET). The CECET, which is a tax on vapes and electronic cigarettes, is calculated at 12.5% of the purchase price, in addition to the standard sales tax. California also levies a tax on cigarettes and tobacco products, with specific definitions and classifications outlined in the California Cigarette and Tobacco Products Tax Law. The state's tax regulations are subject to periodic updates and revisions, such as the cultivation tax ending effective July 1, 2022, and the Prepaid Mobile Telephony Services Surcharge being discontinued from January 1, 2019.
| Characteristics | Values |
|---|---|
| Tobacco and vape retailers | Required to pay California Electronic Cigarette Excise Tax (CECET) on vapes and electronic cigarettes |
| Must register for a permit with the CDTFA to sell vapes or electronic cigarettes | |
| Tobacco retailers must purchase tobacco that is stamped from a tobacco distributor or wholesaler | |
| Tobacco distributors pay state excise taxes on tobacco | |
| Tobacco manufacturers pay federal excise taxes on tobacco | |
| CECET | 12.5% of the purchase price |
| Alcoholic Beverage Tax | Applicable |
| California Firearms, Firearm Precursor Parts, and Ammunition Excise Tax (CFET) | Applicable |
| California Lumber Products Assessment | Applicable; 1% assessment on purchases of lumber products and engineered wood products for use in California |
| Cannabis Taxes | Applicable; excise tax is based on gross receipts from the retail sale of cannabis or cannabis products |
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What You'll Learn
California's Alcoholic Beverage Tax
California imposes an Alcohol Beverage Tax on the sale, distribution, or importation of alcoholic beverages in the state. The tax is a per-gallon excise tax, and revenues from it are deposited into the Alcohol Beverage Control Fund. The California Department of Tax and Fee Administration (CDTFA) collects the tax and administers the program in cooperation with the State Board of Equalization, which hears all appeals for claims for refund or petition for redetermination denials.
The Alcohol Beverage Tax Program's mission is to serve the public through fair, effective, and efficient tax administration. The program recognises that understanding the tax issues and registration requirements specific to the alcoholic beverage industry can be time-consuming and complicated. As such, it provides a tax guide to help sellers, manufacturers, and importers of alcoholic beverages better understand their tax obligations.
The Alcoholic Beverage Tax Guide covers essential information for businesses in the alcoholic beverage industry, including tax registration, reporting, and payment requirements. It also provides details on applicable tax rates, exemptions, and special rules for specific types of alcoholic beverages. Additionally, the guide offers insights into licensing requirements, tax incentives, and compliance procedures.
The Alcohol Beverage Tax Program has undergone several changes over the years. For instance, beginning with 2024 returns, information contained in beer manufacturer returns and supplemental schedules, including names and addresses, must be made public upon request. However, the names and addresses of natural persons, such as sole proprietors, will be redacted. Taxpayers now have the option to prohibit the public disclosure of information contained in their beer manufacturer returns.
It's worth noting that the price of alcohol sold in California includes federal alcohol excise taxes, which are typically passed on to the consumer. These federal excise taxes are collected from the brewer or distiller by the Alcohol and Tobacco Tax and Trade Bureau. Small brewers may be eligible for tax discounts, and the tax rates are adjusted based on various factors.
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California's tax on cigars
Cigars are classified as "other tobacco products" in California, which means they are taxed differently from cigarettes. While cigarettes are subject to a state excise tax per pack, cigars are taxed as a percentage of their wholesale price. This is known as the California Cigarette and Tobacco Products Tax Law.
As of July 1, 2020, the tobacco tax in California was 56.93% of the wholesale price for cigars. This increased to 63.49% as of July 1, 2021. The tax is adjusted annually on July 1 and remains in effect until the following June 30, when it is re-evaluated by the California Department of Tax and Fee Administration (CDTFA).
The CDTFA defines a "cigarette" as:
> "any roll of any size or shape for smoking that is made of any amount of tobacco, regardless of whether it is flavored, adulterated, or mixed with any other ingredient, and has a wrapper or cover made of paper or any other material, and weighs three pounds per thousand sticks or less."
Little cigars are considered cigarettes for taxation purposes and require a cigarette tax stamp. Products that contain nicotine but less than 50% tobacco are not considered tobacco products for taxation. This includes electronic cigarettes and vape liquids.
In addition to state excise taxes, cigars in California are also subject to Federal Tobacco excise taxes, which are collected from the manufacturer and generally passed on to the consumer.
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California's tax on cigarettes
California imposes a tax on cigarettes and tobacco products, which is collectively referred to as the cigarette tax. The tax is assessed on each cigarette distributed in California, and distributors are required to purchase cigarette tax stamps from the CDTFA and affix them to every cigarette package before distribution. Distributors receive a purchase discount of 0.85% of the total tax value per purchase order, with the discount capped at $1 as of April 1, 2017.
The state's definition of a "cigarette" for taxation purposes includes any roll of any size or shape for smoking made of any amount of tobacco, regardless of flavouring or other additives, with a wrapper made of paper or any other material, weighing three pounds per thousand sticks or less. Little cigars are also considered cigarettes for taxation and require a cigarette tax stamp. Electronic cigarettes and vape liquids containing nicotine are not considered tobacco products but are subject to retail licensing.
The tax on cigarettes in California has led to a significant decrease in the state's smoking rate among adults. From 1989 to 2019, the smoking rate dropped from 22% to 10%, according to UCSF research. However, the recent passage of a flavoured tobacco ban has resulted in a decrease in tax revenue for the state. The First 5 California youth services, which depend on tobacco tax revenue, are facing funding cuts as a result of this ban. By 2026, First 5 California expects to receive nearly 30% less from tobacco taxes compared to 2021.
To address the issue of flavoured tobacco products, Assembly Bill (AB) 3218 was signed into law on September 28, 2024. This law allows the seizure of flavoured tobacco products and flavour enhancers from retailers and wholesalers, with a civil penalty of $50 per individual package. It also authorises the suspension or revocation of cigarette and tobacco product licenses for repeat violations. These measures aim to reduce the appeal and accessibility of flavoured tobacco products, particularly to youth.
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California's tax on vapes and e-cigarettes
California has a number of taxes targeting tobacco and alcohol. These include the California Electronic Cigarette Excise Tax (CECET), which came into effect on July 1, 2022. The CECET is a tax applied to the sale of electronic cigarettes and vapes, and it is the responsibility of the retailer to pay this tax. The rate of the CECET is 12.5% of the purchase price.
Retailers of vapes and electronic cigarettes are required to register for a permit with the California Department of Tax and Fee Administration (CDTFA) in order to sell these products. This is a separate permit from the one required to sell tobacco products. While retailers do not pay excise taxes on tobacco, they must be aware of the special tax rules that apply to tobacco products. For example, tobacco distributors pay state excise taxes on tobacco, and tobacco manufacturers pay federal excise taxes.
Electronic cigarettes and vapes are subject to retail licensing. If they contain nicotine, they are also subject to the Cigarette and Tobacco Products Licensing Act of 2003. Revenues collected from the CECET are deposited into the California Electronic Cigarette Excise Tax Fund, which is used to fund essential safety net services and provide grants to students from disadvantaged backgrounds pursuing an education in the health field.
In addition to the CECET, retailers of vapes and electronic cigarettes must also pay sales tax, which is based on the jurisdiction's sales tax rate. It is important for retailers to keep thorough and accurate records of their sales in the event of an audit. A Point of Sale (POS) system can be helpful for this purpose.
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Federal tax on tobacco
The federal government levies taxes on tobacco products, including cigarettes, cigars, pipe tobacco, and roll-your-own tobacco. The federal excise tax on tobacco is intended to fund programs that support children and adults, such as the Children's Health Insurance Program (CHIP), which provides health insurance to many children in the US who would otherwise be uninsured. Federal tobacco taxes were last increased in 2009, with a $0.62 increase in the tax on a pack of cigarettes, bringing the federal cigarette tax to $1.01 per pack. Large cigars are taxed at 52.75% of the manufacturer's sales price, with a maximum tax of 40.26 cents per cigar. Pipe and roll-your-own tobacco are taxed at $2.83 and $24.78 per pound, respectively.
In California, the Cigarette and Tobacco Products Tax Law defines a "cigarette" as any roll of any size or shape for smoking that is made of any amount of tobacco, regardless of whether it is flavored, adulterated, or mixed with other ingredients, and has a wrapper made of paper or any other material, weighing three pounds or less per thousand sticks. Little cigars are considered cigarettes for taxation purposes and require a cigarette tax stamp. Tobacco products, excluding cigars, smoking or chewing tobacco, or snuff, must contain at least 50% tobacco to be taxed as such. Electronic cigarettes and vape liquids containing nicotine are not considered tobacco products but are subject to retail licensing.
California has taken steps to address tobacco taxation and control. As of January 1, 2024, California was one of six states with taxes on other tobacco products, including e-cigarettes, equivalent to cigarette taxes. Additionally, Assembly Bill 3218, signed on September 28, 2024, will authorize the seizure of flavored tobacco products and tobacco product flavor enhancers from retailers and wholesalers, imposing a civil penalty of $50 per individual package seized.
While federal tobacco taxes play a crucial role in funding health and prevention programs, states like California have implemented additional measures to regulate the sale and taxation of tobacco products, including e-cigarettes. These efforts reflect a comprehensive approach to addressing the impact of tobacco use and its associated health concerns.
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Frequently asked questions
The California Cigarette and Tobacco Products Licensing Act of 2003 levies a tax on the distribution of cigarettes and tobacco products in California. Distributors are responsible for paying the tax, which includes the sale, use, or consumption of untaxed cigarettes or tobacco products. Cigarettes are subject to both a cigarette tax and a cigarette and tobacco products surtax.
Revenues from the tax on tobacco products are deposited into the Alcohol Beverage Control Fund. These funds are then withdrawn and used by the state's General Fund or to pay refunds.
Alcohol vendors in California are responsible for paying a state excise tax of $3.30 per gallon, plus Federal excise taxes, for all liquor sold. Federal excise tax rates vary depending on the percentage of alcohol in the beverage.
Federal excise taxes on alcohol are collected by the Alcohol and Tobacco Tax and Trade Bureau. These taxes are typically passed on to the consumer in the beverage's price.
