States see electronic cigarettes as a new tax source

August 3, 2014

As a former cigarette smoker, electronic cigarettes fascinate me.

Woman smoking e-cigarette_WRAL NC e-cig tax report screen shot

I smoked not because I was addicted. I quit cold turkey more than three decades ago as a birthday present to my then new husband (and cat, who also hated my nicotine habit) without any adverse withdrawal symptoms.

I simply liked the taste of my favorite brand of cigarettes. And to this day, I still occasionally think about lighting up.

So the possibility of satisfying that craving with e-cigs is intriguing.

Traditional vs. vaping: Many electronic cigarettes reportedly look and feel similar to their traditional tobacco predecessors, delivering nicotine through inhaled water vapor. The process is known among aficionados as vaping.

Because e-cigs don't contain tobacco (or the 70+ carcinogens that traditional cigarettes do) they ostensibly are less of a health threat.

But since they don't contain tobacco, my burning question — yeah, go ahead and call the pun police — is how do they taste?

Many e-cig reviews say that taste is where the faux smokes fail. So, to the hubby's delight, I'm not taking up the tobacco-free vaping habit.

No tobacco, no tax problem: The lack of tobacco, however, isn't stopping some states when it comes to taxing electronic cigarettes.

Why the interest in this potential revenue source? Money, of course.

While tobacco and paper cig use has dropped, e-cigarette smoking is growing. In 2011, about 21 percent of adults who smoke traditional cigarettes had used electronic cigarettes, up from about 10 percent in 2010, according to a 2013 study by the Centers for Disease Control and Prevention.

Additional CDC data found that during 2011 and 2012, e-cigarette smoking among middle- and high-school students increased from 3.1 percent to 6.8 percent.

That's an estimated 1.78 million students vaping, in large part because in most states there are no restrictions on the sale of e-cigarettes to minors.

Taxing, or trying to, e-cigs: That's a lot of smokers who are buying untaxed products. But that's changing.

Minnesota taxes electronic cigarettes at the same rate as other tobacco products, 95 percent of their wholesale cost. State officials estimate their total tobacco taxes take in 2014-2015 at $1.16 billion.

North Carolina also has OKed a small tax on electronic cigarettes.

Missouri Gov. Jay Nixon vetoed a bill because it exempted e-cigarettes from existing tobacco taxes.

Electronic cigarette tax proposals still pending in:

  • Michigan, calling for a tax of 15 cents per 1.5 milliliters on the nicotine solution in vapor products including electronic cigarettes,
  • New York, proposing a 75 percent tobacco products excise tax on e-cigarettes, and
  • Ohio, considering a proposal to assess the $1.85-per-pack cigarette tax on e-cigarettes.

Failed e-cig tax attempts: New Jersey Gov. Chris Christie has proposed a 75 percent tax on e-cigarettes and related products. That would be the same tax rate now applied to traditional tobacco cigarettes.

The tax didn't clear the Garden State legislature.

Other states that tried but failed this last legislative session to enact tax on e-cigarettes were Hawaii, Indiana, Kentucky, Oklahoma, Oregon, Rhode Island, South Carolina, Vermont and Washington.

And Arizona e-smokers got some good tax news last week. Arizona Attorney General Tom Horne said on July 31 that a no-smoking in public places law approved in 2006 by the state's voters doesn't apply to the electronic nicotine delivery devices.

He also noted that Arizona laws that tax cigarettes and other tobacco products also do not apply to e-cigarettes.

The issue in the Grand Canyon State is that e-cigs don't contain tobacco. That product is specifically cited in laws prohibiting — and taxing — smoking. But state and local lawmakers can enact e-cigarette specific laws if they wish.

But look for the e-cigarette tax battle to continue in the Southwest and across the rest of the country.

Traditional tobacco tax troubles: Meanwhile, even Uncle Sam is grappling with tobacco taxes. A loophole in a federal tobacco tax law revision a few years ago is costing the country much-needed revenue.

A Government Accountability Office (GAO) report found that between the time the Children's Health Insurance Program Reauthorization Act (CHIPRA) took effect in 2009 and through February 2014, the U.S. Treasury lost between $2.6 billion and $3.7 billion.

The problem, says the GAO, is CHIPRA's lower taxes for some tobacco products.

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