Among the smoking community, e-cigarettes have been touted as a healthier alternative to smoking traditional cigarettes because they lack tobacco and some of the harmful carcinogens found in traditional cigarettes. E-cigarettes also emit vapor instead of smoke, lessening some concerns about second-hand smoke inhalation. However, e-cigarettes are a fairly new product, so states and federal agencies are determining how to best treat their use.
The biggest opponents of e-cigarette taxes believe that e-cigarettes are healthier than smoking traditional cigarettes and thus should be a more affordable product, but the increase in their popularity has led some jurisdictions to issue guidance on how they treat e-cigarettes. Specifically, lawmakers have had to decide whether to treat e-cigarettes like other tobacco products because they contain nicotine. Several states now tax e-cigarettes. Some have established a separate e-cigarette tax; others have chosen to group e-cigarettes within existing tobacco products taxes.
Eight jurisdictions currently have e-cigarette taxes—California, Kansas, Louisiana, Minnesota, North Carolina, Pennsylvania, West Virginia and the District of Columbia. California, Minnesota, Pennsylvania and the District of Columbia’s tax rates are based on a percentage of either the wholesale or retail purchase price. Kansas, Louisiana, North Carolina and West Virginia’s taxes are based on the milliliters of consumable product (the e-liquid). California’s e-cigarette tax, which was a part of voter-approved Proposition 56 on this past November’s ballot, goes into effect on April 1.
Current E-Cigarette Taxes
Based on Percentage of Purchase Price:
Based on Milliliters of Consumable Product:
But many other states have considered a tax on e-cigarettes. In 2015 alone, 23 states contemplated excise taxes for e-cigarettes, indicating that e-cigarette taxes are on many jurisdictions’ radar and that more legislation and regulations are sure to follow.
In May 2016, the U.S. Food and Drug Administration (FDA) issued a final rule that deems electronic cigarettes and electronic nicotine delivery systems (ENDS) to be subject to FDA authority beginning Aug. 8, 2016. However, this has not subjected e-cigarettes to federal excise taxes on cigarettes and tobacco products, found in the Internal Revenue Code and administered by the Alcohol and Tobacco Tax and Trade Bureau (TTB).
Most recently, the U.S. National Park Service (NPS) proposed amendments to regulations on Jan. 6, 2017 that would have amended the definition of smoking under 36 C.F.R. §1.4 to include “the direct inhalation of vapor from an electronic nicotine delivery system.” As a result, the NPS’s authority to designate non-smoking areas in national parks would have included the use of e-cigarettes. However, NPS withdrew this regulation on Jan. 18, so e-cigarette users can continue to roam national parks freely using their e-cigarettes while smokers stick to their mandated smoking areas. Although this federal smoking ban was not passed, many states have chosen to include e-cigarettes in their existing smoking bans.
With the implementation of taxes in a number of jurisdictions and recent federal scrutiny, e-cigarettes may be feeling the heat in 2017.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: When it comes to taxes and bans, should e-cigarettes be treated differently or similar to cigarettes?
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.
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