Extras on Excise: Regulating E-Cigarettes is State Legislatures’ ENDS Game

 

We are only a few months into the year and many states are aiming to regulate e-cigarette and electronic nicotine delivery system (ENDS) products through new legislation. So far, Hawaii, Idaho, Iowa, Kansas, New Mexico, Rhode Island, Utah and Washington have all introduced bills that would adopt or alter the way ENDS products are used, purchased, sold or taxed. However, the majority of these state bills have already been defeated in committee, died or failed to pass their respective legislative deadlines. Washington and Rhode Island still have hope for the passage of their proposed legislation.

Washington state’s H.B. 2144 seeks to adopt new legislation to clarify that electronic cigarettes and devices, vape pens and other vaping products are to be taxed the same as other tobacco products. The current tax on other tobacco products is imposed at the rate of 95 percent of the taxable sales price under Wash. Rev. Code § 82.26.020. The bill would also amend the definition of tobacco products under Wash. Rev. Code § 82.26.010 to include any product that “contains nicotine derived from tobacco” and “product[s] containing a solution or other consumable substance that contains tobacco or nicotine derived from tobacco that employs a mechanical heating element, battery or electronic circuit that can be used to produce vapor from the solution or other substance.” 

The proposed legislation has some state businesses worried that the increase in cost the tax will bring to consumers will have them turning to more affordable online distributors. On the other hand, proponents hope the tax would deter adolescents from picking up the habit of using e-cigarettes or other ENDS because they are not as harmless as perceived. 

Rhode Island has no proposed legislation intended to tax ENDS products, but the state legislature has introduced numerous bills that would regulate these products if passed.

• S.B. 232 – would amend R.I. Gen. Laws § 23-1-56, requiring business owners to obtain a license for cigarette products in order to be issued, renew or maintain a license or permit to sell ENDS products. Also, it would add a subsection to R.I. Gen. Laws § 44-20-2 that would require all importers, distributors and dealers to obtain a license to sell cigarette and/or tobacco products prior to selling ENDS.

• S.B. 446 and H.B. 5821 – would amend the definition of smoking or smoke under R.I. Gen. Laws § 23-20.10-2 to “include[] the use of electronic cigarettes, electronic cigars, electronic pipes or other similar products that rely on vaporization or aerosolization.”

• S.B. 5820 – would raise the age restriction for the purpose of buying tobacco products and ENDS from 18 to 21.

• H.B. 5876 – would “prohibit the sale of liquid that is intended for human consumption and/or use in an [ENDS] that is not contained in child resistant packaging” and would ban ENDS usage in schools.

Although only seven states and the District of Columbia have an excise tax in place for e-cigarettes and ENDS products, the majority have passed some type of restriction or regulation concerning these products.

• 16 states and D.C. require a license or permit to sell electronic cigarettes.

• 24 states have some type of packaging regulation in place.

• 47 states and D.C. have restrictions on retail or youth access.

• 31 states and D.C. have set restrictions on where ENDS products can be used/consumed. 

The continued popularity of consuming nicotine through ENDS products over traditional cigarettes and cigars will surely keep legislatures busy on this heated matter.

 

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Should states take a more relaxed approach to regulating and taxing e-cigarettes and ENDS products?

With a free trial to Premier State Tax Library, practitioners have a single trusted resource that provides all of the tools and information they need to develop and implement the right tax strategies.