The Future of E-Cigarette Taxation in Your State

Since their introduction into the marketplace in 2007, e-cigarettes have grown, and continue to grow, at incredibly rapid rates. With more and more people switching to vaping and with the market only expected to grow for vaping product, policymakers at the state and county/city level are not wanting to miss out on the opportunity to impose new e cig taxes on these popular items.

As with any product, e-cigarettes are of course subject to regular sales tax, however, many products, like tobacco and alcohol are given an extra excise tax, what many people have come to call a “sin tax.” However, vaping supporters are crying foul, as e-cigarettes are not true tobacco products and, while they are still not totally proven cessation devices, many people are using them to cut back or quit smoking tobacco completely.

Minnesota was the first state to enact an e-cigarette excise tax in 2012, approving a 95% tax wholesale prices for e-cigarettes, e-liquid and their accessories. This is the same rate at which Minnesota taxes “other tobacco” products, such as cigars and snuff. Not only was Minnesota the first to enact this tax, according to the Tax Foundation’s recent report on vapor products and tax policy, they were the only state to do this administratively, not legislatively.

North Carolina, Kansas and Louisiana are the three other states that currently have e-cigarette excise taxes enacted. Both North Carolina and Louisiana impose a $0.05 per mL tax on e-liquid with Kansas taxing e-liquid at a $0.20 per mL rate. Kansas and Louisiana both turned to a tax on vaping products as a solution to their budget deficits, with Kansas facing a $600 million deficit, and Louisiana trying to solve a $1.6 billion budget shortfall. Other areas that have enacted vapor taxes are Washington D.C. (70% of wholesale tax), Cook County, Illinois ($0.20 per mL tax), Chicago, Illinois ($0.80 per Unit and $0.55 per mL tax) and Montgomery County, Maryland (30% of wholesale tax).  

Over the course of 2015 there would be proposed excises taxes on vapor products in 23 other states, whether at the state or the city/county level. Some have decided to propose taxes based on wholesale percentages and others based on volume, but this creates an interesting dilemma for e-cigarette products, where a percentage based tax structure can lead to a lot of issues. With everything from e-liquids, to MODS, to disposable cig-a-likes all being taxed the same, there is bound to be some disparity issues, when a MOD or vape pen that clearly contains no tobacco products, is taxed the same as e-liquid, or even a cigar.

In addition, since we are still waiting to hear what federal regulation and tax policy will be, many states, cities and counties are going to end up being double taxed, just like the tobacco and cigarette industry already are as well. All states already impose a tax on cigarettes, and most on tobacco products. In addition, the federal government taxes each pack of cigarettes for another $1.01 each pack. What this has created is an insane up charge on cigarettes across the board. While states like Missouri and Virginia have kept their taxes low, ($0.17 and $0.30 respectively) some states have insanely large excise taxes on cigarettes. New York, where cigarettes average almost $15.00 a pack, there is a nearly $6.00 tax on each cigarette pack. The tax on one pack of cigarettes in New York is more expensive than the national average price for a pack of smokes. There is clearly something going on here, and this is just one of the pitfalls of taxation that the e-cigarette industry wants to avoid.

And why shouldn’t it? These are taxes on tobacco, and e-cigarettes are not a tobacco product. They simply do not contain tobacco– in fact some e-liquids contain no nicotine at all. To tax them the same as cigarettes and other tobacco products would be a detriment to the health of the people who could potentially use them, but will be priced out of the option due to the rising tax rates.

The Tax Foundation’s report is an excellent eye opener about the future of taxation of vapor products, even before we know what will happen on a federal taxation level. The report nicely sums up the real issue with the quick judgements of states, cities and counties enacting taxes before we have a clear idea of the real long term implications of e-cigarette use and if a “sin tax” is even right to impose on these devices. The Tax Foundation is clear on their position, considering what we know now about vaping, “What can be stated with certainty is that vapor products differ sharply from traditional incinerated cigarettes in their construction, use, and health risks—distinctions with important implications for taxation.”

Policy makers need to be more aware of the implications of grouping vapor products with tobacco, simply to solve a budget crisis. Adopting a “sin tax” for a device and industry that is actually helping so many people seems counter-productive and shortsighted. Only time will tell if the other states that have proposed taxes will pass, but with over half the states in the union now having some e-cigarette legislation either enacted or proposed the future of e-cigarette taxation is not only unfortunate, it seems imminent as well.

To find out if your state has proposed an e-cigarette tax refer to our info-graphic and visit the Tax Foundation for the proposed bill number or budget proposal that is effecting your state or county/region.

About the Author:

Amber Whaley is an e-cig advocate and writes for IEC as a freelance writer.  

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