Extras on Excise: The Tax Empire Strikes Back Against Electronic Cigarettes

As reported earlier this year by Bloomberg BNA, e-cigarettes had been able to escape state excise taxes not unlike Luke Skywalker dodging Darth Vader’s attacks during the Battle of Yavin. Unfortunately, the Rebel Alliance met this June with two states’ AT-AT Walkers: newly passed vapor product tax laws. 

In Louisiana, Gov. Bobby Jindal (R) gave his imprimatur to H.B. 119. This new law taxes the nicotine e-liquid inside the electronic delivery systems at a rate of $0.05 per milliliter. The tax goes into effect July 1. 

Kansas has opted for a greater share of the pie and will begin collecting $0.20 per milliliter July 1 next year. Gov. Sam Brownback (R) signed a substitute for H.B. 2019 and S.B. 270 into law on June 16. 

Additionally, D.C. may soon see an e-cigarette tax of its own. Bill 21-158 includes a vapor product amendment; the legislation would include vapor products in the statutory definition of “other tobacco product” (cigarettes have their own tax rate). It would go into effect on Oct. 1. Currently, the excise tax rate on other tobacco products is 70 percent of the wholesale price. However, on Oct. 1, the rate will be 67 percent.

Yesterday, the D.C. Council discussed the FY 2016 budget; its website indicates that 21-158 is still under Council review. According to the website, if the Council approves the bill, it will be sent to Mayor Bowser to either sign, veto or let it become law without a signature. Before it can become effective, Congress must review the legislation.

So far, Louisiana and Kansas are the only states to approve e-cigarette taxes this year; the total of states with e-cigarette excise taxes is now four (Minnesota and North Carolina taxed them before this year). Similar bills in 10 states have been killed or have died in committee. 

Other states with tax bills are still going through the legislative process; some are currently in recess. There is also the possibility that more bills will be filed. Pennsylvania’s legislative session began back in January, but S.B. 117 and H.B. 1213 were filed only last month; they call for tax rates of 40 percent of the price on e-cigarettes sold to retailers. 

For now, though Yoda might say “tax or tax not,” state legislatures are definitely going to try. 

Continue the discussion with Bloomberg BNA’s State Tax Group on LinkedIn: Do you think these new e-cigarette taxes are good state tax policy?

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. 

by Laura Lieberman