Is an e-cigarette that passes vapor through a sealed capsule of granulated tobacco subject to New York's tobacco products tax, sales tax, and the 20% vapor products tax?

Plain-English summary

A supplier planning to launch a new electronic cigarette in New York asked whether its product counts as a "tobacco product" subject to the excise tax. The device has three parts: a battery, a cartridge of liquid or gel, and a sealed capsule of granulated tobacco leaf. The battery heats the liquid/gel to make vapor, and the vapor then passes through the tobacco capsule to pick up a tobacco flavor. The tobacco is sealed by the manufacturer and is never burned or ignited — there is no combustion or smoke. The Department concluded the product is taxed three ways.

First, the whole device is tangible personal property, so its sale is subject to State and local sales tax under Article 28 (Tax Law § 1101(b)(6)) — whether sold as one product or as separate components.

Second, the sealed tobacco capsule is a "tobacco product" subject to the tobacco excise tax (Article 20). New York defines "tobacco products" to include tobacco "intended for consumption by smoking, chewing, or as snuff" (Tax Law § 470(2)), and defines snuff as "any finely cut, ground, or powdered tobacco that is not intended to be smoked" (Tax Law § 470(18)). Because the capsule holds granulated tobacco that is never burned, it is snuff — a taxable tobacco product. That is true whether the capsule is sold inside the full device or on its own.

Third, the liquid/gel cartridge is a "vapor product" — "any noncombustible liquid or gel … manufactured into a finished product for use in an electronic cigarette" — so retail sales are subject to the 20% supplemental tax on vapor products under Article 28-C, for sales on or after December 1, 2019. Sold separately, the cartridge owes both regular sales tax and the 20% supplemental vapor tax.

What this means for you

Vape, e-cigarette, and tobacco-product sellers

A device doesn't have to burn tobacco to be hit with New York's tobacco excise tax. Granulated, ground, or powdered tobacco that isn't meant to be smoked is snuff, and snuff is a taxable tobacco product — even sealed inside a vapor device. Expect tobacco products that contain a noncombustible liquid or gel to also draw the 20% vapor-product surtax on top of regular sales tax.

Selling components separately doesn't avoid the tax

Unbundling doesn't help: the granulated-tobacco capsule still owes tobacco excise tax on its own, and the liquid/gel cartridge still owes sales tax plus the 20% vapor surtax. Each component is taxed according to what it is.

Accountants and tax professionals

Watch the three overlapping regimes — Article 28 sales tax, Article 20 tobacco excise (via the § 470(2)/(18) snuff definitions), and the Article 28-C 20% vapor surtax (effective December 1, 2019). A single product can fall into all three. Confirm how each SKU is sold (bundled vs. component) to apply the right combination.

Common questions

Q: Is an e-cigarette taxable in New York?
A: Yes. As tangible personal property, it is subject to State and local sales tax. If it contains a noncombustible liquid or gel, retail sales also owe the 20% supplemental vapor-product tax (for sales on or after December 1, 2019).

Q: The tobacco is never burned — why is it taxed as a tobacco product?
A: Because New York taxes "snuff," defined as finely cut, ground, or powdered tobacco that is not intended to be smoked. The sealed granulated-tobacco capsule fits that definition, so it is a tobacco product subject to the excise tax.

Q: What if I sell the parts separately?
A: The granulated-tobacco capsule still owes the tobacco products excise tax on its own, and the liquid/gel cartridge owes regular sales tax plus the 20% vapor surtax.

Q: Can my business rely on this opinion?
A: Not as binding. A TSB-A advisory opinion binds the Department only as to the petitioner and the exact facts described. Use it to understand the reasoning, then check it against your own facts.

Citations and references

New York Tax Law:
- Tax Law § 1101(b)(6) — definition of tangible personal property (includes the device)
- Tax Law § 470(2) — definition of "tobacco products"
- Tax Law § 470(18) — definition of "snuff"
- Tax Law Article 28 — sales and use tax on tangible personal property
- Tax Law Article 20 — excise tax on tobacco products
- Tax Law Article 28-C — 20% supplemental tax on vapor products (effective December 1, 2019)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao.htm
• Opinion: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/multitax/24-1ms.htm
• Printer-friendly PDF: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a24-1ms.pdf

Original ruling text

Cigarette and Tobacco Tax
Sales Tax
June 11, 2024
Office of Counsel

The Department of Taxation and Finance received a Petition for Advisory Opinion from [ redacted ] (“Petitioner”). Petitioner asks whether its [ redacted ] product (“Product”) is considered a tobacco product and subject to the excise tax on tobacco products.

We conclude that Petitioner’s Product, consisting of the battery, vapor product liquid or gas cartridge, and granulated tobacco leaf capsule, when sold together, is subject to the tobacco products excise tax, State and local sales and use taxes, and the 20% supplemental tax on vapor products. Further, sales of Petitioner’s granulated tobacco leaf capsules, when sold separately, are subject to the tobacco products excise tax. Further, retail sales on or after December 1, 2019, of Petitioner’s vapor product liquid or gel cartridge are subject to the 20% supplemental tax on vapor products.

Facts

Petitioner is a supplier of electronic cigarettes in this State. Petitioner intends to introduce its electronic cigarettes into the market. Petitioner states that its vapor product is comprised of a battery, a cartridge containing liquid or gel, and a granulated tobacco leaf capsule. Petitioner states that its Product is similar to an electronic cigarette in that a battery heats the liquid or gel contained in the cartridge, creating vapors that the user then inhales. However, Petitioner states that its Product is different from other electronic cigarettes on the market in that Petitioner’s Product allows the vapor to pass through a sealed capsule filled with granulated tobacco leaves (“tobacco capsule”). As a result, the user inhales the vapor through the tobacco capsule, giving the vapor a distinct tobacco flavor. The tobacco capsule is sealed by the manufacturer and cannot be burned or ignited in any way. Because the granulated tobacco contained in the sealed tobacco capsule is never ignited or burned, there is no combustion or smoke generated from the use of the product.

Analysis

Petitioner’s Product constitutes tangible personal property. Tax Law § 1101(b)(6).  Article 28 imposes sales tax on sales of tangible personal property. Petitioner’s Product is subject to sales tax, whether sold as a single product or as separate components.

Petitioner’s Product contains a sealed capsule of granulated or finely cut tobacco that is not burned, ignited or intended to be smoked. Tax Law § 470(2) defines tobacco products as “[a]ny cigar, including a little cigar, or tobacco, other than cigarettes, intended for consumption by smoking, chewing, or as snuff.” Tax Law § 470(18) defines snuff as “[a]ny finely cut, ground, or powdered tobacco that is not intended to be smoked.” The capsule incorporated into Petitioner’s Product containing granulated tobacco is considered snuff for tax purposes. Snuff is a tobacco product subject to excise tax under Tax Law Article 20. Therefore, Petitioner’s Product is subject to the tobacco products excise tax when sold as a single item. Further, if sold separately from the other components of the Product (i.e. the battery and vapor liquid or gel cartridge), the granulated tobacco capsules are subject to the tobacco products excise tax.

Article 28-C of the Tax Law imposes a supplemental tax of 20% on the receipts of retail sales of vapor products, which the law defines as:

“any noncombustible liquid or gel, regardless of the presence of nicotine therein, that is manufactured into a finished product for use in an electronic cigarette, electronic cigar, electronic cigarillo, electronic pipe, vaping pen, hookah pen or other similar device.”

Petitioner’s Product contains a noncombustible liquid or gel for use in a device similar to an electronic cigarette. Therefore, Petitioner’s Products contains vapor product, and any retail sales of Petitioner’s Product are subject to the 20% supplemental tax on vapor products. If Petitioner sells the vapor product cartridges separately from the other components of the Product, the receipts from the sale of the vapor product cartridge alone are subject to the State and local sales tax, as well as the 20% supplemental sales tax on vapor products.

DATED: June 11, 2024

Mary Ellen Ladouceur
Principal Attorney

Note: An Advisory Opinion is issued at the request of a person or entity. It is limited to the facts set forth therein and is binding on the Department only with respect to the person or entity to whom it is issued and only if the person or entity fully and accurately describes all relevant facts. An Advisory Opinion is based on the law, regulations, and Department policies in effect as of the date the Opinion is issued or for the specific time period at issue in the Opinion. The information provided in this document does not cover every situation and is not intended to replace the law or change its meaning.