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Taxing Smokeless Cigarettes

As e-cigs grow in popularity, and many states in the U.S. continue experiencing fiscal issues, the potential for special (excise) taxes on smokeless cigarettes continues growing

One of the biggest debates going on in the U.S. today involves the rules and regulations surrounding smokeless cigarettes. This debate takes on many forms, but one of the more controversial parts involves whether e-cigs should be treated like tobacco cigarettes in terms of special taxes.

Some cities and states have already instituted special "excise" taxes on smokeless cigarettes. However, as the popularity of this alternative continues to grow, the pressure to levy taxes will increase from several different groups, including anti e-cig interests, local/state policymakers and other interested parties.

Who is in and Who is on the Fence

Currently, the only state who is actively taxing smokeless cigarettes like tobacco cigarettes is Minnesota. However, other states are taking notice and debating adding taxes in their states. According to the Consumer Advocates for Smoke-Free Alternatives Association (CASAA) and the E-cigarette Forum, states considering such measures include:

  • Indiana
  • Kentucky
  • New Jersey
  • New York
  • Oregon
  • Rhode Island
  • South Carolina
  • Washington

In the past, Utah, Oklahoma and Hawaii have tried to impose taxes on smokeless cigarettes – however, their efforts failed. Even though these are the first states that have released information about their efforts to tax e-cigs, all 50 states will likely consider taxes on smokeless cigarettes at some point.

Minnesota's Department of Revenue for example estimates that the sale of e-cigs will bring in $1.16 billion from all of its tobacco taxes for the 2014-2015 fiscal year. With numbers like these, it is no wonder that other states are beginning to take notice and starting to take a stance.

Washington is one state that is attempting to levy high taxes on smokeless cigarettes and products. A committee in the state house approved a 75% tax on e-cigs in the past. However, if the latest version of the bill being considered passes the Legislature and becomes law, e-liquid (which currently only has the state sales tax added) would jump from adding 65 cents on a $10 bottle to around $20 (just in taxes!) on that same $10, 240 milligram bottle of e-liquid.

To put this into comparison, that would mean that tax would make up two-thirds of the price of the e-liquid. In addition, this means that the tax is double the rate that the state has levied on marijuana and/or alcohol. In some cases, this makes these taxes higher than tobacco cigarettes. Coined as the "vape tax," by 2018, these taxes could bring an estimated $35 million a year to Olympia.

Problems with taxing smokeless cigarettes

Those opposed to the taxations argue that if the government treats e-cigs like tobacco cigarettes, the taxation will just stand to hurt small businesses (by increasing the upfront cost of stocking smokeless cigarettes), not to mention the cost to those simply looking for an alternative to tobacco cigarettes.

In addition, cities and states who impose taxes on smokeless cigarettes (especially those who follow Minnesota closely and impose extremely high taxes) are likely to see the e-cig companies and vapers fight back.

Why lump smokeless cigarettes in with tobacco in the first place?

The easy answer to this question is: MONEY. Wells Fargo estimates that by 2017, smokeless cigarette companies may top $10 billion in profits world-wide. Currently, sales stand at around $2 billion annually. With the fact that most states levy a surcharge of at least $2 per pack of tobacco cigarettes (and $4.35 in New York) means that the government would stand to rake in big bucks by taxing e-cigs.

Even though governing authorities stand to collect quite a bit of money through the taxing of smokeless cigarettes, money is not the only reasoning. Supporters of the taxation also state that by levying the tax, the increased cost would keep e-cigs out of the hands of children and teens–who, arguably, would not be able to afford a more expensive product.

Granted, even if smokeless cigarettes are classified as tobacco cigarettes (and thus eligible for special taxation) they would be subject to a different set of taxes. In Minnesota for example, the law requires e-cigs to have a tax equal to 95 percent of their wholesale price–this is a tax greater than that of tobacco cigarettes.

In order to stay informed on the changing laws and potential taxes surrounding the world of vaping, please continue browsing our blog and knowledge center to learn more.

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