In 2021, new federal legislation was introduced, impacting all sellers of vape-related products that directly ship to consumers. The initial intent of the lawmakers was to regulate nicotine products and prevent their sale to minors. However, the legislation was drafted in such a manner that it has also adversely affected other industries dealing with vape products, including cannabis and CBD. Let’s dive deeper into the vape ecommerce and how the new PACT act affects it.
What is the PACT Act?
- The PACT Act, an abbreviation for the “Prevent All Cigarette Trafficking” Act, traces its origins back to 1949 when it was known as the Jenkins Act.
- This federal law mandates that anyone selling and shipping cigarettes across state lines must report the sale to the tobacco tax administrator of the buyer’s state.
- Amendments were made to modernize the act to accommodate new technology, specifically by expanding its scope to cover online sales in 2009.
- Online sellers became obligated to register with the Bureau of Alcohol, Tobacco, and Firearms (ATF) as well as with the state they operated in and sold to.
- The 2009 amendment also included a ban on the mail delivery of cigarettes and smokeless tobacco within the United States.
These amendments served two primary purposes:
- Preventing underage purchases: The primary aim was to hinder the accessibility of tobacco and related products to minors. The focus on online retail was heightened due to challenges in verifying the age of online consumers.
- Enhancing regulatory control: Regulators gained greater oversight by establishing a connection between taxes and registration with state authorities. This allowed both state and federal officials to conduct more effective audits of companies, consequently leading to closer monitoring of consumer age verification.
What is the Impact of the PACT Act on the Vape Industry?
- The recent Congress amendments to the PACT Act, extending its scope to encompass all vaping products, had a direct impact on businesses engaged in vape ecommerce, including the CBD sector.
- Most specifically, USPS, FedEx, and UPS have all officially announced the end of shipping for electronic vaping devices and related parts to homes.
- Those who do not comply with the PACT Act are subject to serious penalties, even prison, no matter which carrier ships the vaping and e-cigarette products.
- This means that many online vape retailers will need to look for alternatives to best serve their customers. Because of the latest shipping bans and the complications around them, regional carriers will be needed to help fill the gaps in delivering to vape customers.
Challenges and Carrier Options: PACT Act Compliance for Vaping Product Shipments
While there are some challenges with finding the best options, many of these carriers do offer the advantage of targeting specific geographic regions.
- Regardless of whether the shipments are B2B or B2C, the recent extension of the PACT Act now also requires that all shippers of vaping products register with the federal Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”) and provide monthly reports on their shipments of vapor products to state tax authorities.
- Online retailers that engage in B2C shipments will also need to apply for and secure tobacco or vapor product retailer licenses in each state that taxes vaping products and remit the taxes every month.
- As such, these products are now taxed in 30 states and the calculation in each state is different. This requirement goes beyond traditional sales tax as well.
Managing Vapor Product Tax Complexity
- Vape wholesalers and retailers who purchase products from out-of-state manufacturers or distributors will also need to pay the excise tax.
- With the increased tax complexity for anyone selling vapor products, these processes will need to be followed closely.
- There are options to prepare and avoid the problems that come with non-compliance.
- As rates, product taxability rules, and tax laws are constantly in flux, without automation, your business is likely to take on unnecessary risk.
- With the help of tax experts, vape companies can utilize cloud-based compliance solutions for various transaction taxes to help ease the bulk of the process.
Navigating Compliance and the Customer Experience
- Along with these changes, your shoppers are likely to be affected by some of the confusion as well. That’s why it’s important to comply with the new standards put in effect, and it’s also important to communicate and simplify the buying process with your shoppers to maintain and optimize the customer experience.
- Whether your customers are purchasing from a business or a home, they need to know how their shipments will be affected. It’s best to ensure that all standards are being met throughout the entire process, from the time customers visit your website up until receiving the order, and that it is being communicated clearly.
- Preparation and communication not only help but also ensures that you are meeting the current needs of the industry.
- That can mean everything from verifying the age of the recipient and collecting all applicable sales tax to creating custom extensions to specify which products or categories have restrictions for each state in the admin backend.
The Future of the Vape Industry:
- The near future holds uncertainties, prompting sellers to take specific actions.
- Adherence to new tax and labeling regulations is a priority, leading sellers to align with guidelines.
- Some sellers are pausing shipping operations temporarily to reevaluate strategies, contingent on available cash reserves.
- Shifts from USPS to alternative shipping methods are noticeable among sellers.
- Private carrier companies, experienced in shipping tobacco goods, are gaining business from vape product sellers.
- The availability of carriers with a national reach varies, with some being more expensive than major national carriers.
- Sellers are turning to specialized third-party logistics firms (3PLs) that maintain a regional carrier network, ensuring nationwide shipping coverage.
- Increased reliance on retailers and distributors is observed as a way to maintain local market accessibility.
- Balancing profitability, sellers also consider retail partners as a steady revenue source while exploring economical online sales methods.
- There are many options to meet and exceed the needs of your customers along with these changes.
One way you can best prepare is to know all your options and learn all the requirements to best serve your customers. With our extensive guide for vape ecommerce, we’ve compiled some of the most relevant information and resources to help you understand and prepare. Along with our tax partner, Avalara, our ecommerce experts have come together to offer many useful insights and helpful tips, along with the requirements to comply with the latest standards.