H.F. 2598 Section 1. Section 331.303, subsection 3, Code 2020, is 1 amended to read as follows: 2 3. Act upon applications for cigarette , tobacco product, 3 and vapor product tax permits in accordance with chapter 453A . 4 Sec. 2. Section 331.653, subsection 11, Code 2020, is 5 amended to read as follows: 6 11. Carry out duties relating to the seizure and forfeiture 7 of cigarettes, tobacco products, and vapor products, vehicles, 8 and other property used in violation of cigarette , tobacco 9 product, or vapor product tax laws as provided in section 10 453A.32 . 11 Sec. 3. Section 331.756, subsection 19, Code 2020, is 12 amended to read as follows: 13 19. Assist, at the request of the director of revenue, in 14 the enforcement of cigar and cigarette, tobacco product, and 15 vapor product tax laws as provided in sections 453A.32 and 16 453A.49 . 17 Sec. 4. Section 423.3, subsection 57, paragraph h, Code 18 2020, is amended to read as follows: 19 h. “Tobacco” means cigarettes, cigars, chewing or pipe 20 tobacco, or any other item that contains vapor products, and 21 tobacco products as defined in section 453A.1 . 22 Sec. 5. Section 453A.1, subsection 21, Code 2020, is amended 23 to read as follows: 24 21. “Place of business” is construed to mean and include any 25 place where cigarettes , alternative nicotine products, or vapor 26 products are sold or where cigarettes , alternative nicotine 27 products, or vapor products are stored within or without the 28 state of Iowa by the holder of an Iowa permit or kept for the 29 purpose of sale or consumption; or if sold from any vehicle 30 or train, the vehicle or train on which or from which such 31 cigarettes are sold shall constitute a place of business; 32 or for a business within or without the state that conducts 33 delivery sales, any place where alternative nicotine products 34 or vapor products are sold or where alternative nicotine 35 -1- LSB 6161YH (3) 88 pf/jh 1/ 8

H.F. 2598 products or vapor products are kept for the purpose of sale. 1 Sec. 6. Section 453A.15, subsections 1, 2, and 4, Code 2020, 2 are amended to read as follows: 3 1. The director may prescribe the forms necessary for the 4 efficient administration of this subchapter and may require 5 uniform books and records to be used and kept by each permit 6 holder or other person as deemed necessary. The director may 7 also require each permit holder or other person to keep and 8 retain in the director’s possession evidence on prescribed 9 forms of all transactions involving the purchase and sale of 10 cigarettes , alternative nicotine products, or vapor products, 11 or the purchase and use of stamps. The evidence shall be kept 12 for a period of three years from the date of each transaction, 13 for the inspection at all times by the department. 14 2. Where a state permit holder sells cigarettes , 15 alternative nicotine products, or vapor products at retail, the 16 holder shall be required to maintain detailed records for sales 17 of cigarettes , alternative nicotine products, or vapor products 18 to be sold at retail and the cigarette , alternative nicotine 19 product, or vapor product sales records shall be kept separate 20 and apart. 21 4. Every permit holder or other person shall, when requested 22 by the department, make additional reports as the department 23 deems necessary and proper and shall at the request of the 24 department furnish full and complete information pertaining to 25 any transaction of the permit holder or other person involving 26 the purchase or sale or use of cigarettes , alternative nicotine 27 products, vapor products, or purchase of cigarette stamps. 28 The director shall specifically prescribe the forms necessary 29 and require each retailer to provide on the forms prescribed, 30 full and complete information pertaining to any cigarettes, 31 alternative nicotine products, or vapor products offered for 32 sale or sold by the retailer, including the type and brand of 33 the product. 34 Sec. 7. Section 453A.24, Code 2020, is amended to read as 35 -2- LSB 6161YH (3) 88 pf/jh 2/ 8

H.F. 2598 follows: 1 453A.24 Carrier to permit access to records. 2 1. Every common carrier or person in this state having 3 custody of books or records showing the transportation of 4 cigarettes , alternative nicotine products, or vapor products 5 both interstate and intrastate shall give and allow the 6 department free access to those books and records. 7 2. The director may require by rule that common carriers 8 or the appropriate persons provide monthly reports to the 9 department detailing all information the department deems 10 necessary on shipments into and out of Iowa of cigarettes , 11 and tobacco products , alternative nicotine products, or vapor 12 products, as set forth in this subchapter I and subchapter II 13 of this chapter . The director may require by rule that the 14 reports be filed by electronic transmission. 15 Sec. 8. Section 453A.32, subsection 6, Code 2020, is amended 16 to read as follows: 17 6. The provisions of this section applying to cigarettes 18 shall also apply to tobacco products and vapor products taxed 19 under subchapter II of this chapter . 20 Sec. 9. Section 453A.33, Code 2020, is amended to read as 21 follows: 22 453A.33 Seizure not to affect criminal prosecution. 23 The seizure, forfeiture, and sale of cigarettes, tobacco 24 products, vapor products, and other property under the terms 25 and conditions hereinabove set out pursuant to section 453A.32 , 26 shall not constitute any defense to the person owning or having 27 control or possession of the property from criminal prosecution 28 for any act or omission made or offense committed under this 29 chapter or from liability to pay penalties provided by this 30 chapter . 31 Sec. 10. Section 453A.35, subsection 1, paragraph b, Code 32 2020, is amended to read as follows: 33 b. The revenues generated from the tax on cigarettes 34 pursuant to section 453A.6, subsection 1 , and from the tax on 35 -3- LSB 6161YH (3) 88 pf/jh 3/ 8

H.F. 2598 tobacco products as specified in section 453A.43, subsections 1 1, 2, 3, and 4 , and from the tax on vapor products as specified 2 in section 453A.47D, shall be credited to the health care trust 3 fund created in section 453A.35A . 4 Sec. 11. Section 453A.35A, subsection 1, Code 2020, is 5 amended to read as follows: 6 1. A health care trust fund is created in the office of 7 the treasurer of state. The fund consists of the revenues 8 generated from the tax on cigarettes pursuant to section 9 453A.6, subsection 1 , and from the tax on tobacco products 10 as specified in section 453A.43, subsections 1, 2, 3, and 4 , 11 and from the tax on vapor products as specified in section 12 453A.47D, that are credited to the health care trust fund, 13 annually, pursuant to section 453A.35 . Moneys in the fund 14 shall be separate from the general fund of the state and shall 15 not be considered part of the general fund of the state. 16 However, the fund shall be considered a special account for 17 the purposes of section 8.53 relating to generally accepted 18 accounting principles. Moneys in the fund shall be used only 19 as specified in this section and shall be appropriated only 20 for the uses specified. Moneys in the fund are not subject to 21 section 8.33 and shall not be transferred, used, obligated, 22 appropriated, or otherwise encumbered, except as provided in 23 this section . Notwithstanding section 12C.7, subsection 2 , 24 interest or earnings on moneys deposited in the fund shall be 25 credited to the fund. 26 Sec. 12. Section 453A.40, subsections 1 and 3, Code 2020, 27 are amended to read as follows: 28 1. All persons required to obtain a permit or to be licensed 29 under section 453A.13 or section 453A.44 having in their 30 possession and held for resale on the effective date of an 31 increase in the tax rate cigarettes, little cigars, or tobacco 32 products , or vapor products upon which the tax under section 33 453A.6 , or 453A.43 , or 453A.47D has been paid, unused cigarette 34 tax stamps which have been paid for under section 453A.8 , 35 -4- LSB 6161YH (3) 88 pf/jh 4/ 8

H.F. 2598 unused metered imprints which have been paid for under section 1 453A.12 , or tobacco products for which the tax has not been 2 paid under section 453A.46 , or vapor products for which the tax 3 has not been paid under section 453A.47D, shall be subject to 4 an inventory tax on the items as provided in this section . 5 3. The rate of the inventory tax on each item subject to 6 the tax as specified in subsection 1 is equal to the difference 7 between the amount paid on each item under section 453A.6 , 8 453A.8 , 453A.12 , or 453A.43 , or 453A.47D prior to the tax 9 increase and the amount that is to be paid on each similar item 10 under section 453A.6 , 453A.8 , 453A.12 , or 453A.43 , or 453A.47D 11 after the tax increase except that in computing the rate of the 12 inventory tax any discount allowed or allowable under section 13 453A.8 shall not be considered. 14 Sec. 13. Section 453A.42, subsections 1, 2, 8, 9, 10, 12, 15 14, and 17, Code 2020, are amended to read as follows: 16 1. “Business” means any trade, occupation, activity, 17 or enterprise engaged in for the purpose of selling or 18 distributing tobacco products alternative nicotine products, or 19 vapor products in this state. 20 2. “Consumer” means any person who has title to or 21 possession of tobacco products , alternative nicotine products, 22 or vapor products in storage, for use or other consumption in 23 this state. 24 8. “Person” means any individual, firm, association, 25 partnership, joint stock company, joint adventure venture , 26 corporation, trustee, agency, or receiver, or any legal 27 representative of any of the foregoing individual, firm, 28 association, partnership, joint stock company, joint venture, 29 corporation, trustee, agency, or receiver . 30 9. “Place of business” means any place where tobacco 31 products , alternative nicotine products, or vapor products are 32 sold or where tobacco products , alternative nicotine products, 33 or vapor products are manufactured, stored, or kept for the 34 purpose of sale or consumption, including any vessel, vehicle, 35 -5- LSB 6161YH (3) 88 pf/jh 5/ 8

H.F. 2598 airplane, train, or vending machine; or for a business within 1 or without the state that conducts delivery sales, any place 2 where alternative nicotine products or vapor products are sold 3 or where alternative nicotine products or vapor products are 4 kept for the purpose of sale, including delivery sales. 5 10. “Retail outlet” means each place of business from which 6 tobacco products , alternative nicotine products, or vapor 7 products are sold to consumers. 8 12. “Sale” means any transfer, exchange, or barter, in any 9 manner or by any means whatsoever, for a consideration, and 10 includes and means all sales made by any person. It includes 11 a gift by a person engaged in the business of selling tobacco 12 products , alternative nicotine products, or vapor products , 13 for advertising, as a means of evading the provisions of this 14 subchapter , or for any other purposes whatsoever . 15 14. “Storage” means any keeping or retention of tobacco 16 products , alternative nicotine products, or vapor products for 17 use or consumption in this state. 18 17. “Use” means the exercise of any right or power 19 incidental to the ownership of tobacco products , alternative 20 nicotine products, or vapor products . 21 Sec. 14. Section 453A.45, subsection 3, Code 2020, is 22 amended to read as follows: 23 3. Every retailer and subjobber shall procure itemized 24 invoices of all tobacco products , alternative nicotine 25 products, and vapor products purchased. The invoices shall 26 show the name and address of the seller and the date of 27 purchase. The retailer and subjobber shall preserve a legible 28 copy of each invoice for three years from the date of purchase. 29 Invoices shall be available for inspection by the director or 30 the director’s authorized agents or employees at the retailer’s 31 or subjobber’s place of business. 32 Sec. 15. Section 453A.47A, subsection 10, paragraph b, Code 33 2020, is amended to read as follows: 34 b. Every retailer shall, when requested by the department, 35 -6- LSB 6161YH (3) 88 pf/jh 6/ 8

H.F. 2598 make additional reports as the department deems necessary and 1 proper and shall at the request of the department furnish 2 full and complete information pertaining to any transaction 3 of the retailer involving the purchase or sale or use of 4 tobacco, tobacco products, alternative nicotine products, or 5 vapor products. The director shall specifically prescribe the 6 forms necessary and require each retailer to provide on the 7 forms prescribed full and complete information pertaining to 8 any tobacco, tobacco products, alternative nicotine products, 9 or vapor products offered for sale or sold by the retailer, 10 including the type and brand of the product. 11 Sec. 16. NEW SECTION . 453A.47D Tax on vapor products. 12 1. A tax is imposed upon all vapor products in this state 13 at a rate equal to five cents per milliliter of solution or 14 other substance, which may or may not contain nicotine, that 15 is necessary to and used during the operation of a vapor 16 product, including but not limited to any cartridge or other 17 container of a solution or other substance, that is intended to 18 be used with or in an electronic cigarette, electronic cigar, 19 electronic cigarillo, electronic pipe, or similar product or 20 device. If applicable, the tax shall be imposed based on the 21 volume of solution or other substance as specified by the 22 manufacturer of the vapor product. 23 2. The tax on vapor products shall be imposed at the point 24 of retail sale to consumers in this state. The amount of the 25 tax shall be added to the selling price of each vapor product 26 sold in this state and shall be collected from the purchaser so 27 that the ultimate consumer bears the burden of the tax. 28 Sec. 17. Section 453A.48, subsection 3, Code 2020, is 29 amended to read as follows: 30 3. The director may exchange information with the officers 31 and agencies of other states administering laws relating to the 32 taxation of tobacco products and vapor products . 33 Sec. 18. Section 453A.51, Code 2020, is amended to read as 34 follows: 35 -7- LSB 6161YH (3) 88 pf/jh 7/ 8

H.F. 2598 453A.51 Assessment of cost of audit. 1 The department may employ auditors or other persons to 2 audit and examine the books and records of a permit holder or 3 other person dealing in tobacco products or vapor products 4 to ascertain whether the permit holder or other person has 5 paid the amount of the taxes required to be paid by the permit 6 holder or other person under the provisions of this chapter . 7 If the taxes have not been paid, as required, the department 8 shall assess against the permit holder or other person, as 9 additional penalty, the reasonable expenses and costs of the 10 investigation and audit. 11 EXPLANATION 12 The inclusion of this explanation does not constitute agreement with 13 the explanation’s substance by the members of the general assembly. 14 This bill relates to the regulation and taxation of vapor 15 products. 16 The bill imposes a tax on vapor products in the state at 17 a rate equal to 5 cents per milliliter of solution or other 18 substance, which may or may not contain nicotine, that is 19 necessary to and used during the operation of a vapor product, 20 including but not limited to any cartridge or other container 21 of a solution or other substance, that is intended to be 22 used with or in an electronic cigarette, electronic cigar, 23 electronic cigarillo, electronic pipe, or similar product or 24 device. The tax is imposed at the point of retail sale to 25 consumers in this state. The amount of the tax shall be added 26 to the selling price of each vapor product sold in this state 27 and shall be collected from the purchaser so that the ultimate 28 consumer bears the burden of the tax. 29 The bill makes other conforming changes. Existing 30 penalties for violations of the provisions of Code chapter 453A 31 (cigarette and tobacco taxes and regulation of alternative 32 nicotine products and vapor products), including permit 33 revocation or suspension and civil penalties, are applicable to 34 violations of the bill. 35 -8- LSB 6161YH (3) 88 pf/jh 8/ 8