Extras on Excise: D.C. Council Approves E-Cigarette Excise Tax, No Word Yet on Upcoming Hipster Migration


Northern Virginia is known for its huge populations of hill staffers, government contractors, guys wearing brown flip-flops and tourists clogging the Blue Line on the Metro, but due to D.C. Council actions, NoVa may soon see another group of people flocking its streets: hipsters.

It is a truth universally acknowledged that those in possession or want of a good fortune are going to find the best deal possible, and this is nowhere truer than in the field of tobacco consumption. As Bloomberg BNA has reported before, states with higher cigarette taxes are generally host to more inbound cigarette smuggling. New York is the poster child for this phenomenon. The state has the highest excise tax ($4.35 a pack), and New York City has an additional local tax rate of $1.35, as the Tax Foundation notes in a 2015 report. On the other side of the spectrum, Virginia has the second lowest cigarette taxes ($0.30 per pack), and is also the source for thousands of trafficked cigarettes. 

Another similar situation may be in the offing. On Aug. 11, the D.C. Council enacted Bill 21-158, the 2016 budget bill. Before the bill can become effective, Congress must review it over a 30-day period.

This legislation expands the definition of “other tobacco product”(OTP) to include vapor products. This inclusion will subject e-cigarettes to the excise tax imposed on non-cigarette tobacco products. The current OTP tax is 70 percent of the wholesale price, but effective Oct. 1, the rate is 67 percent. 

21-158 defines a vapor product as either the cartridge of nicotine or any electric or battery-powered product “that can be used to produce aerosol from nicotine in a solution.” In short, the device itself is taxable. 

This bill follows two states, Kansas and Louisiana, that have approved e-cigarette taxes this year.

But fear not, denizens of Adams-Morgan and Columbia Heights. While Montgomery County, Maryland’s new e-cigarette excise tax went into effect on Aug. 19, there is another Metro-accessible jurisdiction right nearby—Arlington, Virginia. While there were efforts in the Virginia Legislature to tax e-liquid, both bills got killed before the session ended in February. 

If recent experiences with cigarette trafficking are any indication, D.C. may be learning a lesson in behavioral economics soon—if tax law treats vapor products like tobacco, consumers are likely to do the same.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Is e-cigarette trafficking a likely result of new vapor product taxes?

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by Laura Lieberman