A Bevy of Levies
Across the United States, tobacco consumers have become accustomed to possible hikes in cigarette excise taxes on a state level every year. However, this year, the states are turning a taxing eye toward electronic cigarettes.
At least 14 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 recent AWMA Marketplace & Solutions Expo, which took place Feb. 24–26 in Las Vegas.
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.
Both state legislatures have since introduced measures to amend their levies. Minnesota State Senate Bill 2025 and House Bill 2182 would change the tax on e-cigarettes and nicotine liquid from 95 percent of the wholesale price to 30 cents per milliliter of liquid nicotine solution.
In North Carolina, Senate Bill 407 was modified to tax vapor products at the rate of 3 cents multiplied by the percent of nicotine concentration in the consumable product and by the volume of the consumable product in milliliters, according to NATO.
States are looking at increases in their cigarette excise levies, too. The NATO chief noted that at least 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 proposed increasing the federal excise tax on cigarettes and OTP for a consecutive year.
The president’s proposal 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.