UC San Diego

Introduction: SB-395 enacted the California Electronic Cigarette Excise Tax(CECET) that would require retailers to collect a 12.50% excise tax on electronic cigarette sales from California consumers. This analysis provides insight into the rates of CECET and sales tax adherence among tobacco retailers online.

Methods: In October 2023, 16 buyers attempted to purchase flavored nicotine-vaping products from 78 online tobacco retailers offering delivery to San Diego, resulting in 114 accepted credit card transactions. We analyzed 112 receipts for products containing nicotine, required by SB-395 to include CECET and local sales tax. Of these, 99 purchases were used to evaluate tax adherence and estimate revenue loss. We reported instances where retailers either failed to charge, undercharged, correctly charged, or overcharged CECET and sales tax.

Results: CECET adherence resulted in 87 purchases (88%) failing to charge the CECET, 1 purchase (1%) undercharged, and 11 purchases (11%) correctly charged. The average CECET rate charged was 1.49%, totaling $27.09 collected but resulting in a $146.66 revenue loss. Sales tax adherence showed 83 purchases (83.83%) did not charge sales tax, 2 purchases (2%) were undercharged, 5 purchases (5.1%) correctly charged, and 9 purchases (9.1%) overcharged. The average sales tax rate charged was 2.3%, totaling $30.96 collected but resulting in a $78.88 revenue loss.

Conclusion: Our analysis revealed that adherence to the CECET and local sales tax was low among online retailers suggesting a need for enhanced enforcement tax compliance among e-commerce retailers.