Extras on Excise: Not Just Blowing Smoke—FDA, States Moving Toward E-Cigarette Regulation

If electronic cigarettes become more common and popular, will they face the same kind of regulation as tobacco products? The Food and Drug Administration (FDA) recently announced its intention to regulate them, and some states have already started making regulations of their own.  

The FDA has proposed extending its tobacco authority to cover e-cigarettes—or other products that meet the legal definition of tobacco products. E-cigarettes are battery-operated products that heat chemicals, including nicotine, into an aerosol that a user inhales, according to the FDA. If the rules become final, they will bar minors from purchasing them, ban free samples and require nicotine addiction warnings, according to Bloomberg News.

Right now the FDA regulates cigarettes, cigarette tobacco, roll-your-own tobacco and smokeless tobacco.  Regulation does not equal taxation—the FDA states in its report that FDA regulations do not directly affect the taxation of any product, and jurisdiction to tax electronic cigarettes at the federal level would fall under the U.S. Department of Treasury/Alcohol and Tobacco Tax and Trade Bureau (TTB). However, often taxation follows regulation, or complements it.

At least one state taxes e-cigarettes already. A 2012 Minnesota Revenue Notice found that e-cigarettes meet the state’s “tobacco products” definition, so they are subject to Minnesota’s tobacco products tax.  The state assumes that all nicotine comes from tobacco, but a taxpayer who can document that the nicotine did not come from tobacco will not have to pay the excise tax. 

Several other states already regulate e-cigarettes in some way. For example, Kansas requires electronic cigarettes sellers in the state to be licensed just like those who sell traditional cigarettes (Kan. Stat. Ann. § 79-3303(a)), and does not allow persons under age 18 to purchase or possess them (Kan. Stat. Ann. § 79-3321). Alabama also does not allow minors to purchase, use, possess or transport “alternative nicotine products,” which includes e-cigarettes (Ala. Code § 28-11-13). 

Other states have considered or are actively trying to tax e-cigarettes. During this year’s legislative session, members of Washington state’s legislature attempted to tax e-cigarettes like tobacco products (S.B. 6569), but the measure failed. And this week New Jersey Gov. Chris Christie (R) proposed hiking the taxes on e-cigarettesto help plug a budget shortfall, according to Bloomberg News.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Do you think e-cigarettes should be taxed like traditional tobacco products?

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