DOR: E-Cigarette Compliance

Introduction

Effective July 1, 2022, two taxes are imposed on different types of electronic cigarettes:

The closed system cartridge tax is imposed on the distribution of closed system cartridges at the rate of 15% of the wholesale price of the closed system cartridges. It is either collected by distributors on the wholesale price of such products or by a remote seller if a distributor has not already collected the tax.
The Electronic Cigarette tax is imposed on the retail sale of consumable material (e.g., e-liquid, vape juice, etc.) and vapor products (including open system containers) at the rate of 15% of the gross retail income received by the retail dealer for the sale.

Definitions

Vapor product means either of the following (IC 6-7-4-8):

A device, such as an electronic cigarette, that utilizes a mechanical heating element, battery or electronic circuit, regardless of shape or size, that can be used to produce vapor from consumable material that may or may not be sold with the device.
Any open system container of a consumable material in a solution or other form that is intended to be used with or in a device described above.

Open system container means all containers of consumable material for intended use in a vapor product and for which the container is intended to be refillable. The term does not include closed system cartridges (IC 6-7-2-0.5).

Consumable material means any liquid solution or other material (whether or not it contains nicotine, CBD or any other substance) used in an open system container that is depleted as the vapor product is used. This does not include closed system cartridges (IC 6-7-4-2).

Refer to the Taxability Matrix

Retailer Responsibility

Sales Tax

The sale by a merchant of closed system cartridges, vapor products, open system containers and consumable material are retail transactions that are subject to Sales tax. Therefore, a retailer must register as a retail merchant with DOR and collect and remit Sales tax on these items and all other tangible personal property sold by the store.

If you are not already registered to collect Sales tax, register with DOR through the State of Indiana’s INBiz website, inbiz.in.gov, which allows businesses to register with multiple state agencies.

The Sales tax return (Form ST-103) must be filed monthly using INTIME. Form ST-103 is due the 20th day of each month.

Electronic Cigarette Tax

Electronic Cigarette tax is collected in addition to the Sales tax on retail transactions of consumable material and vapor products. The tax is not imposed on closed system cartridges.

The tax must be broken out as a separate amount from the products sold in any transaction. However, there is no requirement that the Electronic Cigarette tax needs to be broken out separately from the sales tax on an invoice or receipt, but both taxes must be collected on the transaction for products subject to the tax. To report transactions and taxes due for the preceding month, Form ECG-103 must be filed the 15th day of each month using INTIME.

A merchant is required to obtain an Open System Retail Dealer's Certificate (Form ECG-1A) before selling consumable material or vapor products. This certificate is only required for retailers that sell taxable vapor products and consumable material, and only these retailers are required to collect and remit the electronic cigarette tax once they’ve obtained a certificate. If a retailer only sells closed system cartridges and not vapor products and/or consumable material, they do not need to obtain this certificate.

Calculation of Tax

When calculating sales tax owed on a transaction, the merchant must include the electronic cigarette tax collected on the transaction within the base. For example:

Vapor Product	$20
Flavored Consumable Material	$10
Subtotal	$30
Electronic Cigarette Tax (15%)	$4.50 ($30 x 0.15)
Subtotal	$34.50
Sales Tax (7%)	$2.42 ($34.50 x 0.07)
Total	$36.42

Similarly, when closed system cartridges are sold at retail, the Sales tax is imposed on the CSC tax collected at wholesale.

Consequences for Noncompliance

Failure to register for a certificate before selling these items is a Class A misdemeanor. It is also a Level 6 felony if a merchant knowingly fails to collect and remit the tax. Responsible individuals who hold these taxes in trust for the state and are personally liable for the payment of those taxes, plus any penalties and interest attributable to those taxes, to the state include but may not be limited to:

employees of a retail dealers
member of corporate or partnership retail dealers
officers of a company
retail dealers

Revocation of Electronic Cigarette Retail Dealer’s Certificate

Indiana law requires DOR to provide an online list of the business name(s) and address(es) of retail dealers that have an expired Open System Electronic Cigarette (E-Cigarette) certificate (ECG-1A). Failure to renew the certificate annually will result in being added to this list.

Permits are valid for one year but can be revoked or suspended due to nonpayment of delinquent taxes. To be removed from this list of tax-delinquent businesses, the retail dealer must pay the taxes owed.

Note that per Indiana Code (IC 6-2.5-8) if a business has their Registered Retail Merchant Certificate (RRMC) expire or revoked, the E-Cigarette certificate associated with that business will be automatically revoked without notice as well.

An online list of retail businesses with an expired RRMC, as well as a FAQ for delinquent registered merchants are available.

Further Resources

Contact DOR

For more information about electronic excise taxes, email DOR’s Special Tax Division or call 317-615-2710.

For more information about the technical requirements for submitting files, email DOR or leave a message at 317-233-5656.