2015 Brings New Taxation Issues for Tobacco

LAS VEGAS — The tobacco consumer has become accustomed to possible hikes in cigarette excise levies on a state level every year. However, this year, states are turning a taxing eye toward electronic cigarettes.

Fourteen states have introduced electronic cigarette tax bills this year, according to Tom Briant, executive director of the National Association of Tobacco Outlets (NATO). These states include Hawaii, Arkansas, Nevada, New Hampshire, Kentucky and Ohio.

Not every state is looking at taxing the segment in the same way, though. Eight of the states want to tax e-cigarettes like other tobacco products (OTP); some want to apply the current cigarette tax rate; and four states want to tax the nicotine liquid, Briant told attendees of the AWMA Marketplace Solutions & Expo on Wednesday.

Currently, only two states tax electronic cigarettes: Minnesota and North Carolina. Minnesota applies a 95-percent tax rate that increases the retail price of an e-cigarette to between $12.99 and $15.99 — almost double the price of an e-cigarette in other states.

North Carolina, on the other hand, applies a 5-cent-per-milliliter tax on the nicotine liquid, which only adds between 5 cents and 10 cents per disposable electronic cigarette.

"It is significantly less to tax on a per-milliliter basis than OTP," Briant said.

States are looking at increases in their cigarette excise levies, too. The NATO chief noted that 18 states have introduced bills to raise taxes on cigarettes and/or tobacco, including North Dakota, Oklahoma, Pennsylvania, West Virginia and Wyoming.

Increases are not guaranteed. In 2014, 22 states introduced measures to increase cigarette and tobacco taxes, but only Vermont passed an increase, according to Briant. As the economy improves, states no longer need to look toward cigarette tax hikes to fill budget deficits, plus 2014 was an election year when legislators usually shy away from tax increases.

And there is another reason. "Taxing cigarettes and tobacco is reaching a point of diminishing returns," Briant pointed out.

Federal lawmakers are also tackling tobacco tax issues. For example, a tax parity bill was introduced in the U.S. Senate and President Barack Obama has — for a consecutive year —proposed increasing the federal excise tax on cigarettes and OTP.

The president's proposals would fund health insurance and pre-kindergarten programs. However, like the past two years, Briant does not see these proposals gaining traction because Obama, a Democrat, is up against a Republican-controlled U.S. Congress.