An Act taxing certain sales of electronic cigarettes and similar nicotine delivery products, and concerning the licensing and taxation of tobacco products, amending and supplementing P.L.1990, c.39 and amending the title thereof.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. The title of P.L.1990, c.39 (C.54:40B-1 et seq.) is amended to read as follows:

An Act concerning the taxation of cigarettes , electronic cigarettes and other tobacco products, supplementing Title 54 of the Revised Statutes, amending P.L.1982, c.40, amending and supplementing P.L.1948, c.65 and repealing section 4 of P.L.1982, c.40.

(cf: P.L.1990, c.39, title)

2. Section 1 of P.L.1990, c.39 (C.54:40B-1) is amended to read as follows:

1. Sections 1 through 14 of this act shall be known and may be cited as the "Tobacco Products and Nicotine Delivery Products Wholesale Sales and Use Tax Act."

(cf:P.L.1990, c.39, s.1)

3. Section 2 of P.L.1990, c.39 (C.54:40B-2) is amended to read as follows:

2. As used in sections 2 through 14 and section 20 of this act:

"Consumer" means a person except a distributor, manufacturer or wholesaler who acquires a tobacco product for consumption, storage or use in this State;

"Director" means the Director of the Division of Taxation in the Department of the Treasury;

"Distributor" means

a person engaged in the business of selling tobacco products in this State who brings, or causes to be brought into this State from without the State a tobacco product for sale within this State,

a person who makes or manufactures tobacco products in this State for sale in the State,

a person engaged in the business of selling tobacco products without this State who ships or transports tobacco products to a person in this State to be sold to a retail dealer, or

a person who receives tobacco products [on which the tax has not or will not be] without receiving proof that the tax has been or will be paid by another distributor;

"Dry snuff" means any finely cut, ground or powdered smokeless tobacco that is intended to be sniffed through the nasal cavity, but does not include moist snuff;

“Electronic cigarette” means a device that can deliver nicotine, nicotine and flavor, or other chemicals or substances to a person inhaling from the device that electronically or by other means vaporizes a liquid solution into an aerosol mist or vapor, simulating the act of tobacco smoking. An electronic cigarette includes but is not limited to any components, parts or accessories thereof which contain nicotine, such as cartridges and vials, and includes any delivery device components, whether or not sold separately;

"Manufacturer" means a person, wherever resident or located, who manufactures or produces, or causes to be manufactured or produced, a tobacco product and sells, uses, stores or distributes the product regardless of whether it is intended for sale, use or distribution within or without this State;

"Moist snuff" means any finely cut, ground or powdered smokeless tobacco that is intended to be placed or dipped in the oral cavity, but does not include dry snuff;

"Person" means an individual, firm, corporation, copartnership, joint venture, association, receiver, trustee, guardian, executor, administrator, or any other person acting in a fiduciary capacity, or an estate, trust or group or combination acting as a unit, the State Government and any political subdivision thereof, and the plural as well as the singular, unless the intention to give a more limited meaning is disclosed by the context;

"Place of business" means a place where a tobacco product is sold or where a tobacco product is brought or kept for the purpose of sale or consumption, including so far as may be applicable a vessel, vehicle, airplane, train or vending machine;

"Receipt" means the sale price of a tobacco product valued in money, whether received in money or otherwise, including early payment discounts, and without any deduction or exclusion for expenses or costs whatsoever;

"Retail dealer" means a person who is engaged in this State in the business of selling any tobacco product at retail. A person placing a tobacco product vending machine at, or on any premises shall be deemed to be a retail dealer for each vending machine;

"Sale" means any sale, transfer, exchange, barter, or gift, in any manner or by any means whatsoever;

"Tobacco product" means any product containing , made, or derived from any tobacco , nicotine or other chemicals or substances for [personal] human consumption , or placement in the oral or nasal cavity or otherwise into the human body, whether chewed, smoked, absorbed, dissolved, inhaled, snorted, sniffed, or ingested by other means, including, but not limited to, cigars, little cigars, cigarillos, chewing tobacco, pipe tobacco, smoking tobacco and their substitutes, [and] dry and moist snuff, and electronic cigarette, but does not include cigarette as defined in section 102 of the "Cigarette Tax Act," P.L.1948, c.65 (C.54:40A-1 et seq.) . "Tobacco product" does not include any product that is approved by the United State Food and Drug Administration for tobacco cessation, nicotine cessation, or other therapeutic purpose if that product is marketed and sold solely for that approved purpose ;

"Treasurer" means the State Treasurer;

"Use" means the exercise of any right or power incidental to the ownership of a tobacco product, including a sale at retail;

["Wholesale price" means the actual price for which a manufacturer sells tobacco products to a distributor;] and

"Wholesaler" means a person, wherever resident or located, other than a distributor as defined herein, who:

a. purchases tobacco products from any other person who purchases from the manufacturer and who acquires tobacco products solely for the purpose of bona fide resale to retail dealers or to other persons for the purposes of resale only; or

b. services retail outlets by the maintenance of an established place of business for the purchase of tobacco products including, but not limited to, the maintenance of warehousing facilities for the storage and distribution of tobacco products.

(cf: P.L.2006, c.37, s.4)

4. Section 3 of P.L.1990, c.39 (C.54:40B-3) is amended to read as follows:

3. a. There is imposed a tax of 30% upon the [wholesale price upon the] receipt from every sale, use or distribution of a tobacco product [within] by a distributor or a wholesaler to a retail dealer or consumer in this State, except that if the product is moist snuff, the tax shall be imposed as provided in section 3 of P.L.2006, c.37 (C.54:40B-3.1) , and except that if the product is an electronic cigarette the tax shall be imposed as provided in section 5 of P.L. , c. (C. ) (pending before the Legislature as this bill) .

b. Unless a tobacco product has already been or will be subject to the wholesale sales tax imposed in subsection a. of this section, if a distributor or wholesaler uses a tobacco product within this State, there is imposed upon the distributor or wholesaler a compensating use tax of 30% measured by the [sales price] receipt from a sale of a similar tobacco product to a distributor, except that if the product is moist snuff, the tax shall be imposed as provided in section 3 of P.L.2006, c.37 (C.54:40B-3.1) , and except that if the product is an electronic cigarette the tax shall be imposed as provided in section 5 of P.L. , c. (C. ) (pending before the Legislature as this bill) .

c. Unless a wholesale use tax is due pursuant to subsection b. of this section, if a distributor or wholesaler has not paid the wholesale sales tax imposed in subsection a. of this section upon a sale that is subject to the wholesale sales tax imposed in that subsection a., there is imposed upon the retail dealer or consumer chargeable for the sale a compensating use tax of 30% of the price paid or charged for the tobacco product, except that if the product is moist snuff, the tax shall be imposed as provided in section 3 of P.L.2006, c.37 (C.54:40B-3.1), and except that if the product is an electronic cigarette the tax shall be imposed as provided in section 5 of P.L. , c. (C. ) (pending before the Legislature as this bill), which shall be collected in the manner provided in subsection b. of section 5 of this act.

(cf: P.L.2006, c.37, s.5)

5. (New section) a. There is imposed a tax of 75% upon the receipt from every sale, use or distribution of an electronic cigarette by a distributor or a wholesaler to a retail dealer or consumer in this State.

b. Unless an electronic cigarette has already been or will be subject to the wholesale sales tax imposed in subsection a. of this section, if a distributor or wholesaler uses an electronic cigarette within this State, there is imposed upon the distributor or wholesaler a compensating use tax of 75% measured by the receipt from a sale of a similar electronic cigarette by a distributor to a retail dealer.

c. Unless a wholesale use tax is due pursuant to subsection b. of this section, if a distributor or wholesaler has not paid the wholesale sales tax imposed in subsection a. of this section upon the receipt from a sale that is subject to the wholesale sales tax imposed in that subsection a., there is imposed upon the retail dealer or consumer chargeable for the sale a compensating use tax of 75% of the price paid or charged for the electronic cigarette, which shall be collected in the manner provided in subsection b. of section 5 of P.L.1990, c.39 (C.54:40B-5).

6. Section 4 of P.L.1990, c.39 (C.54:40B-4) is amended to read as follows:

4. Every distributor or wholesaler shall be liable to pay the tax when it has sold or otherwise disposed of the tobacco product to the retail dealer or consumer. The retail dealer or consumer shall be given a true copy of an invoice, receipt or other statement or memorandum [stating that] of the charge made for the sale or other disposition and the tax that has been or will be paid by the distributor of wholesaler , which amount of tax shall be stated and shown separately on the document given to the retail dealer or consumer .

The director may provide by regulation that the tax upon tobacco products, sold to a retail dealer or consumer who pays the distributor or wholesaler in installments, may be paid and the return filed on the amount of each installment.

(cf: P.L.2001, c.448, s.3)

7. Section 5 of P.L.1990, c.39 (C.54:40B-5) is amended to read as follows:

5. a. Every distributor or wholesaler required to pay the tax imposed by this act shall be personally liable for the tax imposed under this act.

b. If a distributor or wholesaler fails to pay the tax imposed by this act when required to pay the same, then in addition to all other rights, obligations and remedies provided, the compensating use tax imposed in either subsection c. of section 3 of P.L.1990, c.39 (C.54:40B-3), subsection c. of section 3 of P.L.2006, c.37 (C.54:40B-3.1) or subsection c. of section 5 of P.L. , c. (C. ) (pending before the Legislature as this bill), as the case may be, shall be payable by the retail dealer or consumer directly to the director, and it shall be the duty of the retail dealer or consumer to file a return, on a form prescribed by the director, with the director and to pay the tax to the director within 20 days of the date the tax was required to be paid or at other times as specified by the director.

(cf: P.L.2001, c.448, s.4)

8. Section 6 of P.L.1990, c.39 (C.54:40B-6) is amended to read as follows:

6. a. [Within 15 days from the effective date of this act, or in] In the case of manufacturers, distributors , [or] wholesalers or retail dealers commencing business or opening new places of business [after that] on or after the effective date of P.L. , c. (pending before the Legislature as this bill) , within three days after the commencement or opening, every distributor or wholesaler required to pay the taxes imposed by this act and every manufacturer or retail dealer who sells tobacco products shall file with the director [a certificate of registration] an application for the applicable license in a form prescribed by the director [unless] which shall be in addition to a certificate of authority that has been previously issued to any distributor or wholesaler. The director shall issue, without charge, to each [registrant] manufacturer , distributor, and wholesaler a certificate of authority requiring the [registrant] licensee to pay the tax and a duplicate thereof for each additional place of business of the [registrant] licensee . Each certificate or duplicate shall state the place of business to which it is applicable. The certificate of authority shall be prominently displayed in the place of business of the [registrant] licensee . Certificates shall be nonassignable and nontransferable and shall be surrendered to the director immediately upon the [registrant's] licensee's ceasing to do business at the place named.

b. On and after the effective date of P.L. , c. (pending before the Legislature as this bill), no person who is a manufacturer, distributor, wholesaler or retail dealer shall engage in that business without having first obtained the appropriate license for that purpose as prescribed by P.L.1990, c.39 (C.54:40B-1 et seq.). All licenses shall be issued by the director, who shall make rules and regulations respecting applications therefor and issuance thereof, which may include, in the discretion of the director, requirements based upon the provisions of subsections a. through f. of section 202 of P.L.1948, c.65 (C.54:40A-4).

c. Each license shall lapse on March 31 of the period for which it is issued, and each license shall be continued annually upon the conditions that the licensee shall have paid the required fee for continuance thereof and complied with all the provisions of P.L.1990, c.39 (C.54:40B-1 et seq.) and the rules and regulations of the director made pursuant thereto.

d. For each license issued to a manufacturer, and for each continuance thereof, there shall be paid to the director a fee of $350.

For each license issued to a distributor, and for each continuance thereof, there shall be paid to the director a fee of $350. If a distributor sells or intends to sell tobacco products at two or more places of business, whether established or temporary, a separate license shall be required for each place of business. Each license, or certificate thereof, or other evidence of license, shall be exhibited in the place of business for which it is issued and in the manner as may be prescribed by the director. The director shall require each licensed distributor to file with the director a bond in an amount not less than $10,000 to guarantee the proper performance of the distributor's duties and the discharge of the distributor's liabilities under this act. The bond shall be executed by the licensed distributor as principal, and by a corporation approved by the director and duly authorized to engage in business as a surety company in the State of New Jersey, as surety. The bond shall run concurrently with the distributor's license.

For each license issued to a wholesaler, and for each continuance thereof, there shall be paid to the director a fee of $250. If a wholesaler sells or intends to sell tobacco products at two or more places of business, whether established or temporary, a separate license shall be required for each place of business. Each license, or certificate thereof, or other evidence of license, shall be exhibited in the place of business for which it is issued and in the manner as may be prescribed by the director.

For each license issued to a retail dealer, and for each continuance thereof, there shall be paid to the director a fee of $50. Of the license fee $40 shall be credited to the special projects and development fund in the Department of Health established pursuant to section 7 of P.L.1966, c.36 (C.26:2F-7) for the purposes specified therein. The director shall determine and certify to the State Treasurer on a monthly basis the amount of revenues collected by the director which are to be credited to the special projects and development fund in the Department of Health.

If a retail dealer sells or intends to sell tobacco products at two or more places of business, whether established or temporary, or whether in the same building or not, a separate license shall be required for each place of business. Each license, or certificate thereof, or other evidence of license, shall be exhibited in the place of business for which it is issued and in the manner as may be prescribed by the director.

A person licensed only as a distributor or as a manufacturer or as a wholesaler or as a retail dealer shall not operate in any other capacity except under that for which that person is licensed herein, unless the appropriate license or licenses therefor are first secured.

No license shall be issued to a person except upon the payment of the full fee therefor, any statute or exemption to the contrary notwithstanding. No license shall be assignable or transferable, except as hereinafter provided, but in the case of death, bankruptcy, receivership, or incompetency of the licensee, or if for any other reason whatsoever the business of the licensee shall devolve upon another by operation of law, the director may, in the director's discretion, extend that license for a limited time to the executor, administrator, trustee, receiver, or person upon whom the same has devolved. A purchaser or assignee of a licensed wholesaler or licensed distributor, or an other person upon whom the business of a licensed wholesaler or licensed distributor shall devolve by operation of law, shall upon application to the director, be entitled to an assignment or transfer of the wholesale or distributor license for the balance of the existing license period upon payment of a transfer fee of $5 and subject to that person's qualification to be a licensed wholesaler or licensed distributor under the provisions of this act. No refund of the license fee shall be paid to a person upon the surrender or revocation of any license except a license fee paid or collected in error. But, upon payment of a $5 fee, there may be obtained (1) a duplicate license, or certificate thereof, in the event the original is lost, destroyed or defaced, and (2) an amended license, or certificate thereof, upon a change in the location of the place of business of a wholesaler, distributor or retail dealer.

e. The director shall require an applicant for a tobacco products retail dealer license to include on the application the address of the place of business where the tobacco products will be sold. If the place of business is moved to a different address than that provided on the license application, the licensee shall notify the director within 30 days of the change of address.

(cf: P.L.2001, c.448, s.5)

9. Section 7 of P.L.1990, c.39 (C.54:40B-7) is amended to read as follows:

7. Every distributor or wholesaler required to pay any tax imposed by [this act] P.L.1990, c.39 (C.54:40B-1 et seq.) shall keep records of every charge for and of all amounts of [wholesale price paid or due thereon] each sale, use or distribution of a tobacco product by the distributor or wholesaler and of the tax payable thereon, in such form as the director may require. Records shall include a true copy of each invoice, receipt, statement or memorandum upon which the provisions of section 4 of [this act] P.L.1990, c.39 (C.54:40B-4) require that the tax paid be stated. Records shall be available for inspection and examination at any time upon demand by the director or duly authorized agent or employee and shall be preserved for a period of three years, except that the director may consent to their destruction within that period or may require that they be kept longer.

(cf: P.L.2001, c.448, s.6)

10. Section 8 of P.L.1990, c.39 (C.54:40B-8) is amended to read as follows:

8. a. Every distributor or wholesaler required to pay tax under [this act] P.L.1990, c.39 (C.54:40B-1 et seq.) shall on or before August 20, 1990, and on or before the 20th day of each month thereafter, make and file a return for the preceding month with the director. The return shall show the total amount of [wholesale price paid] receipts for sales [to] and use by the distributor or wholesaler for tobacco products that are payable during the period and the amount of taxes required to be paid with respect to such amount. The return shall also reflect any use tax due.

b. The director may permit or require returns to be made covering other periods and upon such dates as the director may specify. In addition, the director may require payments of tax liability at such intervals and based upon such classifications as the director may designate. In prescribing other periods to be covered by the return or intervals or classifications for payment of tax liability, the director may take into account the dollar volume of tax involved as well as the need for ensuring the prompt and orderly collection of the taxes imposed.

c. The form of returns shall be prescribed by the director and shall contain such information as the director may deem necessary for the proper administration of this act. The director may require amended returns to be filed within 20 days after notice and to contain the information specified in the notice.

d. The director may require that in addition to any return required to be filed, each licensee file a report quarterly upon those dates as the director may specify, concerning, but not limited to, amounts and quantities of purchases and sales and use of tobacco products and the prices paid and collected thereon for each type of tobacco product and for each premise of the licensee to ensure the proper administration of P.L.1990, c.39 (C.54:40B-1 et seq.).

(cf: P.L.2001, c.448, s.7)

11. Section 9 of P.L.1990, c.39 (C.54:40B-9) is amended to read as follows:

9. Every distributor or wholesaler required to file a return under this act shall, at the time of filing the return, pay to the director the taxes imposed by this act. Taxes for the period for which a return is required to be filed or for a lesser interval as shall have been designated by the director, shall be due and payable to the director on the date limited for the filing of the return for the period, or on the date limited for such lesser interval as the director has designated, without regard to whether a return is filed or whether the return which is filed correctly shows the total amount of the [wholesale price paid for] receipts from sales [to] or use by the distributor or wholesaler for tobacco products that are taxable during the period or the taxes due thereon. [If] In addition to the requirements in subsection d. of section 6 of P.L.1990, c.39 (C.54:40B-6), if the director deems it necessary to protect the revenues to be obtained under this act, the director shall require a distributor or wholesaler required to pay the tax imposed by this act to file with the director a bond, issued by a surety company authorized to transact business in this State as to solvency and responsibility, in an amount as the director may fix , but not less than the amount provided in subsection d. of section 6 of P.L.1990, c.39 , to secure the payment of any tax or penalties or interest due or which may become due from the distributor or wholesaler under this act. If the director determines that a distributor or wholesaler is to file a bond, the director shall give notice to the distributor or wholesaler to that effect specifying the amount of the bond required. The distributor or wholesaler shall file the bond within five days after the giving of notice unless within the five days the distributor or wholesaler requests in writing a hearing before the director at which the necessity, propriety and amount of the bond shall be determined by the director. The determination shall be final and shall be complied with within 15 days after the giving of notice thereof. In lieu of bond, securities approved by the director or cash in an amount as the director may prescribe, may be deposited, which shall be kept in the custody of the director who may at any time without notice to the depositor apply them to any tax or interest or penalties due, and for that purpose the securities may be sold by the director at public or private sale without notice to the depositor thereof.

(cf: P.L.2001, c.448, s.8)

12. Section 12 of P.L.1990, c.39 (C.54:40B-12) is amended to read as follows:

12. In addition to the powers granted in [this act] P.L.1990, c.39 (C.54:40B-1 et seq.) , the director may:

a. Make, adopt and amend rules and regulations appropriate to the carrying out of this act.

b. Extend, for cause shown by general regulation or individual authorization, the time of filing any return for a period not exceeding three months on such terms and conditions as the director may require; and for cause shown, remit penalties and interest as provided for in the State Uniform Tax Procedure Law, R.S.54:48-1 et seq.

c. Delegate functions and powers to any officer or employee of the division, and such of the director's powers as the director may deem necessary to carry out efficiently the provisions of this act, and the person or persons to whom such power has been delegated shall possess and may exercise all of the power and perform all of the duties as delegated.

d. Require any distributor or wholesaler required to pay tax to keep detailed records of all amounts of [wholesale prices paid for] receipts from sales or use of the tobacco products on which taxes are payable, and names and addresses of wholesalers, distributors, retail dealers and consumers, and other facts relevant in determining the amount of tax due and to furnish such information upon request to the director.

e. Assess, determine, revise and readjust the taxes imposed by this act.

f. Enter into agreements with other states and the District of Columbia, providing for the reciprocal enforcement of similar tax laws imposed by the states entering into such an agreement. The agreement may empower the duly authorized officer of any contracting state, which extends like authority to officers or employees of this State, to sue for the collection of that state's taxes in the courts of this State.

(cf: P.L.2001, c.448, s.10)

13. (New section) a. Notwithstanding the provisions of section 8 of P.L.1990, c.39 (C.54:40B-8) to the contrary, each distributor and wholesaler under P.L.1990, c.39 (C.54:40B-1 et seq.), shall take a physical inventory of all items of electronic cigarettes in that distributor’s or wholesaler's possession at the close of business on the last day of the first month following the date of enactment of P.L. , c. (C. ) (pending before the Legislature as this bill) or another date as the director may prescribe, and shall file a return under oath or certified under the penalties of perjury with the director in the form as the director may prescribe by the twentieth day of the third month following that date of enactment, showing the amount of all items of electronic cigarettes in that distributor’s or wholesaler's possession in the State at the close of business on the day prior to the effective date of P.L. , c. (pending before the Legislature as this bill) and shall at the time of filing that return pay to the director the tax imposed pursuant to section 5 of P.L. , c. (C. ) (pending before the Legislature as this bill) as reflected on that return.

Failure to obtain those forms shall not be an excuse for the failure to make a return containing the information required by the director.

b. Each retail dealer shall take a physical inventory of all of electronic cigarettes in that dealer’s possession in this State at the close of business on the last day of the first month following the date of enactment of P.L. , c. (C. ) (pending before the Legislature as this bill) or another date as the director may prescribe, and shall file a return under oath or certified under the penalties of perjury with the director in such form as the director may prescribe by the twentieth day of the third month following that date of enactment, showing the amount of all items of electronic cigarettes in that dealer’s possession in this State at the close of business on that day and shall at the time of filing that return pay to the director the tax imposed pursuant to section 5 of P.L. , c. (C. ) (pending before the Legislature as this bill) as reflected on that return.

Failure to obtain those forms shall not be an excuse for the failure to make a return containing the information required by the director.

14. This act shall take effect on the first day of the second month beginning after the date of enactment, and shall apply to tobacco products sold or otherwise disposed of on and after that date, except for those tobacco products for which the tax was paid prior to the effective date of this act, except that sections 13 and 14 of this act shall take effect immediately.

STATEMENT

This bill imposes the New Jersey Tobacco Products Wholesale Sales and Use Tax on electronic cigarettes. Electronic cigarettes and similar tobacco-substitute smoking devices are designed to deliver a nicotine-based or other substance-based vapor and are often manufactured to resemble cigarettes, cigars and pipes. Under this bill, the wholesale sales tax rate for these unregulated products and their components is imposed at a rate of 75% to impose a tax burden in line with a similar tax burden imposed upon cigarettes under the cigarette tax act.

The bill also reestablishes the wholesaler's price charged by the wholesaler upon their sale of any tobacco product to a retail dealer as the base upon which the tax is determined. This was the tax base imposed under the tax first enacted in 1990 but was changed in 2002 to the manufacturer's wholesale price, which has complicated the calculation, collection and enforcement of the tax as the sale by a manufacturer to a wholesaler does not trigger the wholesaler's tax liability.

The bill also requires licensing by the Division of Taxation of businesses of a manufacturer, distributor, wholesaler or retailer of tobacco products under the New Jersey Tobacco Products Wholesale Sales and Use Tax Act. Currently, a tax license is not required for conducting sales of tobacco products such as cigars, chewing tobacco, pipe tobacco, moist snuff, etc. The license will be in addition to the certificate of authority to collect the tax and will allow the Director of the Division of Taxation the ability to conduct the same review of the background and qualifications of such businesses as under the cigarette tax act. The director will have the authority to issue the license and make rules and regulations concerning the same and impose licensing fees. Eighty percent of the State revenue from the $50 annual licensing fees collected from retailer dealers will be credited to the special projects and development fund in the Department of Health to provide grants to local health agencies for local enforcement efforts concerning the sale and commercial distribution of tobacco products to persons under the age of 19 years.

Data released by the Centers for Disease Control and Prevention (CDC) indicate that the use of electronic smoking devices has increased nationwide and, during 2011-2012, doubled among middle and high school students. The CDC data further indicate that use of electronic smoking devices has been associated with increased use of conventional tobacco products and may serve as an “entry point” to use of conventional tobacco products by minors, particularly as the cartridges used in the devices, which are often made with flavors such as fruit, mint, or chocolate, may be attractive to minors. While New Jersey became the first state to ban the use of electronic smoking devices in public places and workplaces, and to ban sale of the devices to minors, comparable State tax treatment is necessary to avoid an unintended tax preference that is gaining the attention of the tobacco industry that has turned to marketing these products to younger "smokers of legal age."

The health and safety implications of using electronic smoking devices are not known. However, limited studies conducted by the CDC and FDA found potential health concerns and quality control issues with the devices: harmful substances were found in some products, including irritants, genotoxins, and animal carcinogens; nicotine was found in products labeled as containing no nicotine; and large variations were found in the quantity of nicotine delivered in each puff. The bill exempts from the tax any product that is approved by the United State Food and Drug Administration for tobacco cessation, nicotine cessation, or other therapeutic purpose if that product is marketed and sold solely for that approved purpose.