States use three primary tax structures for vaping products. Understanding the difference is critical because the same percentage can produce very different consumer costs depending on the structure:
1. Ad Valorem Tax (Percentage of Price)
Tax is calculated as a percentage of the wholesale or retail price. Example: California's 56.25% wholesale tax means a product with a $10 wholesale price carries a $5.63 tax, passed through to consumers via higher retail prices.
Pros: Automatically adjusts for inflation and price increases. Cons: Disproportionately taxes premium products; creates a "tax on a tax" when layered with sales tax.
2. Specific/Volume Tax (Per Unit)
Tax is calculated per unit of e-liquid, typically per mL or per milligram of nicotine. Example: Kentucky's $0.005/mL tax means a 5mL disposable carries a $0.025 tax — negligible. But Connecticut's $0.40/mL means that same 5mL disposable carries a $2.00 tax.
Pros: Simple, predictable revenue. Cons: Doesn't adjust for inflation; can overtax low-priced products and undertax premium ones.
3. Hybrid Tax (Combination)
Some states use both structures: a percentage of wholesale price plus a per-mL surcharge. Example: New York applies both a 20% wholesale surcharge and a $0.0125/mL tax.
