I wanted to follow up on the meeting we had the other week involving the interpretation of the portion of the definition of “vapor product” in bold below:
IC 6-7-4-8 "Vapor product"
Sec. 8. (a) Except as provided in subsection (b), as used in this chapter, "vapor product" means any of the following:
(1) A device, such as an electronic cigarette, that employs 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.
(2) 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 in subdivision (1).
(3) Disposable vapor product devices that are attached to a closed system cartridge and intended for single use
(b) The term "vapor product" does not include closed system cartridges (as defined in IC 6-7-2-0.5).
Meanwhile, a “closed system cartridge” is defined as follows:
IC 6-7-2-0.5 "Closed system cartridge"
Sec. 0.5. As used in this chapter, "closed system cartridge" means a sealed, prefilled, and disposable container of consumable material in which the container is inserted directly into a vapor product, and is not intended to be opened or accessible through customary or reasonably foreseeable handling or use.
We’ve had meeting with additional concerned members of the industry regarding this issue, as well. I don’t recall if this was your clients’ specific concern regarding this part of the statute, but these members brought up that certain disposable devices which include a cartridge permanently affixed to a vapor product are referred to in the industry as a closed system, but per the definitions above, it includes both a closed system cartridge and a vapor product, both of which are subject to the different taxes.
The department had interpreted that such disposable closed systems to be subject to the electronic cigarette tax based on the inclusion of an affixed vapor product. However, we have recently been presented with additional information concerning these devices. Additionally, newly passed language in IC 6-7-2-7.5 provides that if a closed system cartridge is sold in the same package as a vapor product device, the CSC tax applies to the entire amount because the wholesale cost of the closed system cartridge cannot be isolated from the vapor product device on the invoice. With that in mind, the department will now clarify with an update to General Tax Information Bulletin #206 that these disposable devices are subject to the CSC tax and not the electronic cigarette tax at retail.
I just wanted to clarify this for you and your clients as well.
Please let me know if you have any questions or concerns.
Director of Tax Guidance
Indiana Department of Revenue
100 N. Senate Ave. IGCN 248
Indianapolis, IN 46204
Phone: (317) 233-5209