Extras on Excise: Will Tobacco Buttlegging Contraband Broaden to E-Vapelegging?

State legislatures have been attempting to pass legislation to tax vaping, the use of a nicotine-based liquid medium heated into vapor for consumption without the burning of tobacco. 

Among them is Alabama which is eyeing a tax on vapor products as it struggles with a budget deficit. Recently, Alabama’s governor, Robert Bentley (R), introduced in his budget proposal a $0.25 tax per milliliter on vapors that contain nicotine, which was ultimately defeated. The tax would have caused a price increase of $7.50 for a 30 milliliter vial of liquid. One concern was that   customers would be more willing to cross state lines to fulfill their vaping needs.

For comparison, as of July 1, Louisiana began taxing the nicotine e-liquid at a rate of $0.05 per milliliter, meaning a 30-milliliter bottle would be taxed only $1.50. Kansas will start to tax e-cigarettes July 1, 2016 at a rate of $0.20 per milliliter, costing $6.00 in taxes per 30-milliliter container. 

The real question that comes along is what kind of burden would this put on the vaping community and the state revenue in general? Imposing tax at too high a rate could result in e-cigarette smuggling.  Not taxing vaping or imposing too low of a tax might erode the tax base.

The e-cigarette community in Alabama has made their reservations about such a high tax known. Alabama is surrounded by Florida, Georgia and Mississippi, none of which have a tax on vapor products. The likelihood that the cost of the tax will cause people to drive to a neighboring state to purchase the e-cigarette liquid is a real concern. The other concern is that a market for smuggling e-cigarette liquid will become just as popular as the problems states have seen with cigarette smuggling from low excise tax jurisdictions. Previously this has been a big problem for New York, having the highest cigarette excise tax in the States at $4.35 a pack. 

The debate is playing out at the local level too. There is likely going to be a proposed plan in Chicago to have a $1.25 tax on vapor products and a 25 cent tax per milliliter of nicotine e-liquid. This is a part of Rahm Emmanuel’s budget proposal and he and other proponents of this tax say it is more for discouraging use by children rather than the estimated $1 million per year in revenue it is estimated to produce. But if history is any guide, the intent of this measure might be undermined by older siblings who are willing to purchase some e-liquid beyond city lines.