Online retailer noncompliance to e-cigarette excise tax and tobacco licensing laws

Tax non-compliance by online vaping retailers undermines excise taxes designed to reduce vaping rates and fund prevention efforts. Despite California's 12.5% Electronic Cigarette Excise Tax and federal mandates under the Prevent All Cigarette Trafficking Act, online vaping retailers' adherence to excise taxes remains unclear. This study assessed excise tax compliance among online vaping retailers shipping products to California consumers.

156 purchase attempts were made from n=78 online vaping retailers shipping to San Diego residential addresses. 16 buyers used their personal billing information and residential addresses. Receipts obtained from their purchases were analysed to determine if retailers charged the required 12.5% tax. Retailer licensing status was verified by comparing retailer information to the state's licensed business list using geolocation and approximate string matching. Differences in compliance rates were compared using χ² and Fisher's exact tests.

Of the n=58 retailers with receipts, 84.5% did not charge the required excise tax. In-state retailers were more likely to be (p<0.001) licensed than out-of-state (4.0%) or international (0.0%), but tax compliance rates did not significantly differ by retailer location (p=0.57)-intrastate (19.2%), interstate (16.7%) or international (0.0%). Licensed retailers had higher tax compliance (27.3%) than unlicensed ones (9.1%); however, overall compliance was low.

Many online vape retailers fail to comply with California's excise tax and licensing laws. Low compliance rates indicate existing enforcement mechanisms are not optimised for online sales. Enhancing oversight and enforcement of excise tax laws for online retailers is crucial to reduce tax non-compliance, prevent revenue loss and support public health.