States are moving to tax vapor products

Governors and legislatures in several states have begun the year tabling proposals to tax vapor products. The proposals differ in the scope and levels of the taxes.

The Massachusetts Senate is considering SD.171, “An Act relative to the taxation of electronic smoking devices, cigars and smoking tobacco”. The bill would extend the tax currently levied on smoking tobacco to “electronic smoking liquid” which is defined as “any product in liquid form for use in a device that can deliver nicotine to the user through inhalation of vapor.”

An excise tax of 40% of the wholesale price would be imposed on wholesalers “at the time the product is purchased, received or acquired for retail sale”. A similar tax introduced in October of 2016 in Pennsylvania led to the closing of many vape shops whose owners determined that the new levy had made their business nonviable.

A bill introduced in New York’s Senate (SD 1089) to amend the tax law and the public health law would classify e-cigarette cartridges as tobacco products. An identical bill has been introduced into the State Assembly and has the support of Governor Andrew Cuomo. The current proposal would tax the liquid used in e-cigarettes at 10 cents per milliliter.

Virginia’s House Bill 2056 proposed a mixed levy on vapor products. In addition to a tax of 5 cents per milliliter of consumable vapor products the bill would have introduced a 10 % levy on the retail sales price of non-consumable vapor products and devices. Facing strong opposition led by the Virginia Smoke Free Association sponsors of the tax proposal withdrew the bill.

The State of Arizona Senate is considering SB 1517 which would amend provisions of the luxury tax and introduce a tax of 95% of the wholesale price of “e-cigarettes, cartridges and e-juice containing nicotine.” In nearby New Mexico, sponsors of S.B. 231 would classify vapor products, including e-cigarettes as “tobacco products” and subject them to a tax of 95% of the wholesale price.

Ohio Governor John Kasich has included a proposal to tax e-cigarettes the same as other tobacco products in the State’s budget for 2017-18. Meanwhile, lawmakers in Hawaii are considering a tax on electronic cigarette devices as well as the liquid used in them so as to reduce youth consumption of these products. Discussions thus far have focused on levying a tax on the wholesale price of these products. However, no agreement on the rate has yet been reached.

While the outcome of these legislative proposals may not be known, a clear trend is emerging across the United States. As smokers switch to vapor products in growing numbers, lawmakers increasingly see the potential for new tax revenue.