By Timothy S. Donahue
Top Takeaways:
- Tax dispute: A Virginia vape and tobacco wholesaler is challenging a $5.6 million tax deficiency tied to its 2022 tax year.
- Accounting fight: The case reportedly centers on disallowed cost-of-goods deductions and tax documentation issues.
- Regulatory pressure: The dispute comes as Virginia intensifies oversight of vape taxation and enforcement statewide.
A Virginia wholesale distributor of vape and tobacco products is challenging a $5.6 million tax deficiency assessment for its 2022 tax year, adding to a growing wave of financial and regulatory disputes facing nicotine businesses nationwide.
According to Law360 reports, the company is contesting the assessment after Virginia tax authorities allegedly disallowed substantial claimed costs of goods sold related to its vape and tobacco operations.
The dispute reportedly involves roughly $22 million in disallowed costs that ultimately contributed to the multi-million-dollar tax bill.
Specific court filings identifying the company and its arguments were not fully public, but the case reflects increasing scrutiny of vape distribution, accounting practices, and excise taxation as states tighten oversight of nicotine markets.
Virginia has become one of the more aggressive states in expanding its enforcement of vape-related activity in recent years. The state currently taxes liquid nicotine products at 11 cents per milliliter, while heated tobacco products are taxed at 20% of the wholesale price.
Virginia also expanded its broader vape enforcement framework through new legislation that targets unauthorized vapor products and strengthens state oversight of nicotine distribution channels. Earlier this year, Virginia Attorney General Jay Jones praised the passage of the state’s Vape Enforcement Act, calling underage vaping a “public health and safety issue.”
“These products are marketed in ways that downplay the harm,” Jones said during a March press conference discussing the legislation. “The Vape Enforcement Act closes those loopholes and gives us the tools to stop it.”
At the same time, parts of Virginia’s vape regulatory framework remain tied up in ongoing litigation. Federal courts previously issued a partial injunction blocking enforcement of parts of Virginia’s vape-directory law after distributors and retailers argued that the system improperly relied on federal FDA authorization standards and unfairly advantaged major tobacco companies.
Plaintiffs in those cases argued that Virginia’s rules effectively created a market dominated by products tied to large tobacco manufacturers because FDA PMTA authorizations remain heavily concentrated among major companies.
