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Electronic Cigarette: Latest news from federal regulations and its consequences for small businesses

Electronic Cigarettes are mostly free of federal rules and are generally only subject to state sales taxes. How long?

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WASHINGTON - While the debate over e-cigarettes is expected to hit the Capitol, several state and local governments are pursuing their own plans to tax and regulate popular smoking alternatives that run on batteries. There is a uniform national approach to regulating electronic cigarettes. They are mostly free of federal rules and are generally only subject to state sales taxes.

But lawmakers in more than two dozen states with liquidity problems are competing to regulate them as a new source of revenue. For some, this means focusing on a consumption tax - which is a fee on a specific product, often dubbed a "sin tax" when applied to socially rejected products like cigarettes.

Minnesota has taken the lead in the charge and is currently the only state that has a specific tax policy for electronic cigarettes in books. The decision of 2012 subjects steam inhalers to a 95 percent tax that is stapled to the product's wholesale cost.

According to the Minnesota Department of Revenue, electronic cigarettes are considered to be tobacco products and are subject to state tobacco tax. Distributors are required to pay the tobacco tax at the risk of losing their license. Retailers must purchase electronic cigarettes from state-licensed dealers and expect to "collect and remit the sales tax on electronic cigarettes."