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.

You also might find these items of interest:

Share:

The More Tax Posts tab at the top of this page will take you to, well, more tax posts. You also can search below for a tax topic. 

Latest Posts
6 tax moves to consider this June

June 3, 2026

Definitely take a break this June. But taxes don’t take vacations. So, you also should…

Read More
Tax Season 2026 Continues!

We made it. Tax Day 2025 is finally over. For most of us. When the filing season started on Jan. 26, millions who were expecting refunds filed immediately. Most of us got our returns to the Internal Revenue Service by April 15. But plenty of taxpayers also got extensions. They are looking at an Oct. 15 filing deadline.

Those procrastinating filers aren’t a problem. In fact, the IRS appreciates taxpayers who take time to fill out their 1040 forms correctly. It also is grateful that tax submissions are spread out a bit, especially now that the IRS is a leaner agency. Processing returns is easier when they arrive throughout the year instead of in massive bunches.

But enough about Uncle Sam’s tax collection issues. The focus now is on all y’all who filed for extensions, giving you another six months to complete your return. Since your new mid-October due date will be here before you know it, let’s get started now on meeting it.

The ol’ blog is here to help you finish up your extended Form 1040. You can start with January’s tax tips page, which has links to the rest of the year’s tips by-month collections. You also can peruse various tax categories for more tailored advice by clicking on the More Tax Posts drop-down menu at the top of this (and every) page.

And to make sure you don’t miss your new filing deadline, the count-down clock below will let you know just how much time you to file by Oct. 15. At the latest.e. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

Comments