Tax Guide for Cigarettes and Tobacco Products

Understanding the tax and fee issues specific to cigarette and tobacco products businesses can be time-consuming and complicated, so it is essential that you get the information you need in a timely and understandable way, helping you focus on starting and growing your business.

This guide will help you better understand the tax and licensing obligations for retailers, distributors, wholesalers, manufacturers, importers, and consumers of cigarettes and tobacco products.

• Throughout this guide, we may use the term “Native American” to represent “American Indian” and “Indian” as these terms are used in the state and federal law.
• The general information provided in this tax guide does not supersede any law or regulation. This guide summarizes the law and applicable regulations in effect when it was published. However, changes in the law or regulations may have occurred. If there is a conflict between this guide and law, the law governs.

Cigarettes

Under the California Cigarette and Tobacco Products Tax Law (Revenue and Taxation Code [R&TC] section 30003), “cigarette” is any roll of any size or shape for smoking that:

• Is made of any amount of tobacco regardless of whether it is flavored, adulterated, or mixed with any other ingredient, and
• Has a wrapper or cover made of paper or any other material, and
• Weighs three pounds per thousand sticks or less.

Please note: A roll with a wrapper that is mainly made of tobacco and weighs more than three pounds per thousand sticks is considered a tobacco product.

Tobacco Products

"Tobacco products" are defined under the California Cigarette and Tobacco Products Tax Law (Revenue and Taxation Code section 30121(b)).

Tobacco products include, but are not limited to:

• Smoking or pipe tobacco (including shisha)
• Chewing tobacco
• Snuff
• Cigars
• Little cigars
• Any product containing, made of, or derived from any amount of tobacco that is intended for human consumption
• Any product containing, made of, or derived from any amount of nicotine that is intended for human consumption

• Any product containing synthetic nicotine that is intended for human consumption
• Any product containing nicotine derived from plants such as tobacco, eggplant, potatoes, or synthetically created, that is intended for human consumption

Notes

1. Tobacco products do not include cigarettes. Tobacco products do not include any product that has been approved by the United States Food and Drug Administration for sale as a tobacco cessation product or for other therapeutic purposes (for example, nicotine patches) when that product is marketed and sold solely for such approved use. Effective April 1, 2017, Proposition 56 (passed November 2016) amended the definition of “tobacco products” under the California Cigarette and Tobacco Products Tax Law (Revenue and Taxation Code section 30121). Prior to April 1, 2017:
   • Little cigars were considered cigarettes for taxation purposes and required a cigarette tax stamp;
   • Tobacco products (other than cigars, smoking or chewing tobacco, or snuff) had to contain at least 50 percent tobacco;
   • Any products containing, made of, or derived from nicotine and not containing 50 percent or more of tobacco were not necessarily tobacco products;
   • Electronic cigarettes sold with nicotine and vape liquids containing nicotine were not tobacco products;
   • Any component, part, or accessory of an electronic cigarette when sold with nicotine were not tobacco products.
2. Nicotine does not include any food products as defined in Revenue and Taxation Code section 6359.
3. Electronic cigarettes do not include delivery devices (for example, eCigarettes or vape pens) sold individually or with a liquid or substance containing 0mg nicotine and are not considered tobacco products for taxation purposes; however, they are subject to retail licensing (see “STAKE ACT Definition of Tobacco Products for Retailer Licensing Purposes”).

STAKE Act Definition of Tobacco Products for Retailer Licensing Purposes

A "tobacco product" is defined under the Stop Tobacco Access to Kids Enforcement (STAKE) Act for cigarette and tobacco products retailer licensing purposes.

Tobacco products, for cigarette and tobacco products retailer licensing purposes, include:

• Any product containing, made, or derived from tobacco or nicotine that is intended for human consumption.
• Any electronic smoking or vaping device that delivers nicotine or other vaporized liquids.
• Any component, part, or accessory of a tobacco product, whether or not sold separately.

Examples include, but are not limited to, cigarette papers or wrappers, electronic cigarettes, hookah (waterpipe), atomizers, vaping tanks or mods, and eLiquids or eJuices.

For more information about the retailer license requirement, see the Getting Started section, under Licenses Required. While we administer the cigarette and tobacco products retailer licensing requirements, the California Department of Public Health (CDPH) administers the STAKE Act. For more information on the STAKE Act definition of tobacco products, see the CDPH's website and their publication “What is a Tobacco Product under California Law?”

Notes

1. Under the Stop Tobacco Access to Kids Enforcement (STAKE) Act, Business and Professions Code section 22950.5 amended the definition of a tobacco product effective June 9, 2016. The STAKE Act definition of a tobacco product also applies to tobacco products retailers for the cigarette and tobacco products retailer license requirement under the Cigarette and Tobacco Products Licensing Act of 2003, Business and Professions Code section 22971.7, effective January 1, 2017.
2. The California Cigarette and Tobacco Products Licensing Act of 2003 does not affect any laws or regulations regarding cannabis or cannabis products such as vape devices, pens, or accessories that are intended and designed for use in consuming cannabis or cannabis products into the human body. Cigarettes and tobacco products may not be sold at the same location that is licensed as a cannabis business.

Imposition of Tax

The cigarette and tobacco products tax is paid by a distributor upon the distribution of cigarettes and tobacco products in California.

A distribution includes the sale, use, or consumption of untaxed cigarettes, or untaxed tobacco products in California, and the placing of untaxed cigarettes or untaxed tobacco products into a vending machine or retail stock in California (Revenue and Taxation Code Section 30008).

How Cigarettes are Taxed

Cigarettes are subject to both the cigarette tax and the cigarette and tobacco products surtaxes, collectively referred to as cigarette taxes. The taxes are assessed on each cigarette distributed in California.

Cigarette distributors pay the taxes by purchasing cigarette tax stamps from the CDTFA. Distributors are required to affix the tax stamp to each package of cigarettes before distribution. In turn, distributors receive a purchase discount of 0.85 percent of the total tax value per purchase order to help offset the cost of affixing cigarette tax stamps. As of April 1, 2017, the 0.85 percent discount for cigarette tax stamps is capped at the first one dollar ($1.00) in denominated value of the stamp (Revenue and Taxation Code section 30166). Distributors pass the cigarette taxes on to their customers, as part of the selling price of the cigarettes. The cost of the cigarette tax stamp includes all of the aforementioned taxes.

Visit the tax rate page to view current and historical cigarette tax rates.

How Tobacco Products are Taxed

Tobacco products (products other than cigarettes) are subject to the cigarette and tobacco products surtaxes.
The tobacco products tax is imposed upon the distribution of tobacco products and is paid by tobacco products distributors.

A tobacco products distributor is required to calculate the amount of tobacco products tax due by applying the tobacco products tax rate to the wholesale cost of the tobacco products distributed in California and pay the total amounts owed each reporting period.

Visit the tax rate page to view current and historical tobacco products tax rates.

Tobacco Products Tax Rate Calculation

The CDTFA annually determines the tobacco products tax rate, which is equivalent to the combined rate of the taxes imposed on cigarettes. The calculation of the rate is based on the wholesale cigarette prices reported to the CDTFA as of March 1 each year, and is effective during the next fiscal year (July 1 through June 30). The tobacco products tax rate is calculated by dividing the tax rate imposed on cigarettes by the average wholesale cost of cigarettes:

C = Tax rate per cigarette
W = Weighted average wholesale cost of one cigarette
X = Tax rate on tobacco products

Starting with fiscal year 2021-22, the tobacco products tax rate calculation is based on cigarette sales as reported to CDTFA by cigarette manufacturers and importers for the preceding November through January. Prior to fiscal year 2021-22, the rate calculation was based on the wholesale premium brand cigarette price as of March 1, as published by the Tobacco Merchants Association.

How the Revenue is Used

The cigarette tax rate is $0.1435 per cigarette stick. Typically, a pack of cigarettes contains 20 sticks of cigarettes. Using this example, the cigarette tax rate on a pack of 20 cigarettes is $2.87.

Of the total two dollars and eighty-seven cents ($2.87) cigarette tax rate per package of twenty (20) cigarettes (or equivalent amount of tobacco products):

• Two dollars ($2.00) are deposited into the California Healthcare, Research and Prevention Tobacco Tax Act of 2016 Fund (Prop. 56, effective April 1, 2017)
  These funds are to be used for various purposes and programs, including:
  • Increased funding for existing healthcare programs and services,
  • Use prevention programs among all Californians, but particularly the youth, and
  • Medical research for cancer, heart and lung tobacco-related diseases.
  • The development of professional and parental education and training,
  • Informed selection of childcare,
  • Development and education of childcare providers, and
  • Research into the best practices and standards for all programs and services relating to early childhood development.
  • Tobacco-related health education programs and disease research,
  • Medical and hospital care and treatment of patients who cannot afford those services, and for whom payment will not be made by any private coverage or federal program, and
  • Programs for fire prevention; environmental conservation; protection, restoration, enhancement, and maintenance of fish, waterfowl, and wildlife habitat areas; and enhancement of state and local parks and recreation.
  • These funds are transferred to the General Fund.
  • These funds support breast cancer-related research and breast cancer screening for uninsured women.

  Cigarette and tobacco products license fees are deposited in to the Cigarette and Tobacco Products Compliance Fund solely for the purpose of implementing, enforcing, and administering the California Cigarette and Tobacco Products Licensing Act of 2003.

  How to Use This Guide

  The Getting Started section provides information about the licenses required, registration, renewals, and filing your tax forms online, including a link to our Cigarette and Tobacco Product Online Filing webpage where you will find online filing and reporting resources.

  The Retailer & Wholesaler, Distributor, Manufacturer & Importer, and PACT Act & Consumer sections provide detailed information specific to each person along the cigarette and tobacco products supply chain.

  See the Industry Topics and Resources sections for helpful information and references.

  If You Need Help

  If at any time you need assistance with topics included in this guide — or with topics not included — feel free to contact us by telephone or email. Contact information and hours of operation are available in the Resources section.

  If you have suggestions for improving this guide, please contact us via email.