Commonwealth Court Ruling on Taxation: Tax E-Cigarettes but Not Individual Component Parts

June ended with the Commonwealth Court issuing a unanimous ruling on whether it is unlawful or not for Pennsylvania to press taxes on electronic cigarettes and e-liquid under the broad name “tobacco products” even if they do not deliver tobacco. And to the dismay of electronic cigarette merchant account owners, the jury decided that taxing e-cigs was not unconstitutional.

But the court also discovered and made it clear that it would be a breach of the Tobacco Products Tax Act (TPTA) to tax separately/individually packaged section parts that make up e-cigs.

The petition was filed by the renowned East Coast Vapor against the Pennsylvania Department of Revenue, arguing that the latter’s intentions were unconstitutional for the following reasons;

  • TPTA’s description of “tobacco products” as items that contain or deliver nicotine violated the United State’s definition of the same.
  • It would also be in contravention of Pennsylvania law to tax individual parts because most e-cigarettes either do not have nicotine or have nicotine that does not come from tobacco.

Going harder on their counterparts, East Coast further argued that individually taxing the section parts of e-cigs which the Pennsylvania DOR (Department of Revenue) regard as “integral” to the gadgets is not backed up by TPTA and infringes the uniformity clause of the state rules.

On a June 22 court reading by Judge Renee Cohn Jubelirer, the Commonwealth Court first threw away DOR’s claims that East Coast had failed to follow protocol because it didn’t present the dispute to the Board of Finance and Revenue before moving to court.

Jubelirer said East Coast was not out of protocol in raising a significant constitutional challenge.

Addressing the due process claim, the judge declared that according to legislative history “the General Assembly has had concerns about young people using e-cigarettes becoming addicts to nicotine and shifting to cigarettes, a habit that can cause deadly diseases.”

“The petitioner has never alleged that the nicotine in e-liquid, although allegedly obtained from non-tobacco sources, is in any way different than the nicotine from tobacco or any less addictive,” said Jubelirer.

 “Because nicotine is present in both tobacco and e-liquid, and the petitioner has never made claims that tobacco-based nicotine is any different than the nicotine in e-liquid, it makes no difference that the nicotine in e-liquid has nicotine from non-tobacco source. For that reason, it is not ‘unreasonable, unduly oppressive or deliberately beyond the necessities to tax a product that’s similar to tobacco, when it has nicotine and is as addictive as tobacco-based products.”

Jubelirer also added that taxing e-cigarettes and e-liquid “has a rational relationship to applicable state rules”: i.e., to discourage the use of these products by raising their prices.

The Commonwealth, however, postponed the ruling on the question of whether the taxing should cover non-nicotine e-liquids products on the basis that it was unnecessary to look into a facial constitutional challenge and the fact that the DOR has the power to decide on whether TPTA allows taxation of such liquids.

Moving forward, the court … Read more ...

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