The E-Cigarette Legislative Environment

MINNEAPOLIS -- This year, local and state governments have considered numerous proposals to ban underage sales, raise taxes, restrict smoking, prohibit displays, and limit advertising. While these issues sound like further attempts to tax and restrict traditional tobacco products, this plethora of legislation takes aim at electronic cigarettes.

 

 

Cities, towns and counties have been very active in proposing local regulations and restrictions on electronic cigarettes. Most of the local proposals have involved prohibiting the use of electronic cigarettes in public places such as restaurants, bars, bowling alleys, shopping malls and other places that the public gathers.  

 

However, other legislative initiatives have attempted to restrict e-cigarette advertising and store displays.  NATO, through its local advocacy project, has been successful in (1) rescinding a Stuart, Fla. ordinance that would have required all e-cigarette advertisements to be in black text on a white background, (2) defeating a Story County, Iowa ordinance that would have banned all e-cigarette displays from the public view, (3) preventing the adoption of a Scotts Valley, Calif. ordinance that would have banned all e-cigarette ads, and (4) opposing an e-cigarette tax in Morton Grove, Ill.

 

Responding to local ordinances that target e-cigarettes is important because each time that a local government fails to pass a restriction or overturns an ordinance already adopted, a precedent is established to prevent other cities and counties from attempting to adopt the same kind of law.

 

 

Currently, Minnesota is the only state that taxes e-cigarettes, with an other tobacco tax rate (OTP) of 95% the wholesale cost. The impact of a 95% wholesale tax on e-cigarettes means that the average price for a disposable e-cigarette with the state excise tax and sales tax included is around $16 to $18. This is essentially double what e-cigarettes sell for at retail in other states.

 

So far this year, bills to tax e-cigarettes have been defeated or failed in four states including Hawaii (100% OTP), Indiana (24% OTP), Oregon (81.25% OTP), and Washington (95% OTP). 

 

The states with e-cigarette tax bills still pending are Kentucky (15% or 20% OTP), New Jersey (same as $2.70/pack cigarette tax rate), New York (75% OTP), Ohio (same as $1.85/pack cigarette tax), Rhode Island (80% OTP), and Vermont (92% OTP). This also means that 39 states have not yet considered legislation to tax e-cigarettes.

 

Eight of these ten bills seek to apply the tobacco tax rate to e-cigarettes, most likely because a federal court decision involving the FDA’s attempt to regulate e-cigarettes held that e-cigarettes are to be considered tobacco products for purposes of federal regulations. 

 

Besides taxes, 32 states have passed laws prohibiting the sale of e-cigarettes to underage youth. The accompanying map shows those states in red with laws that ban e-cigarette sales to minors.

 

 

Unlike some states, neither the Obama Administration nor Congress has proposed assessing a federal tobacco tax on e-cigarettes. The President and Congress were likely waiting for the issuance of the FDA deeming regulations before considering a federal e-cigarette tax. 

 

Also, a bill introduced in Congress would prohibit the marketing of e-cigarettes to children.  However, the kind of restrictions proposed on e-cigarettes would fail to conform to First Amendment constitutional protections extended to product advertising.  

 

Given all of the e-cigarette legislative activity this year on the local, state and federal levels, the industry will be faced with responding to a growing effort among lawmakers to tax, restrict and regulate this new product category.