At the beginning of 2014, only one state had assessed an excise tax on electronic cigarettes. In fact, Minnesota has assessed a 95% other-tobacco-products excise tax on e-cigarettes for the past three years.
During 2014, approximately one-fourth of the state legislatures considered bills or budget proposals to impose some kind of state tax on e-cigarettes. As of mid-July, only North Carolina had enacted a tax on e-cigarettes at a rate that is substantially different than Minnesota’s 95% tobacco tax rate.
In North Carolina, nicotine liquid solution used in electronic vapor products (e.g., e-cigarettes) will be taxed at a rate of 5 cents per fluid milliliter of the nicotine liquid solution. This new kind of tax on e-cigarette nicotine liquid will go into effect July 1, 2015. The North Carolina tax focuses on the amount of nicotine liquid either in a disposable e-cigarette cartridge or bottle of nicotine liquid used to refill an open system or tank-type e-cigarette.
Other Proposed Taxes
Besides North Carolina, legislative bills or budget proposals were introduced in 11 other states to impose a tax on e-cigarettes. Most of these legislative tax proposals were either defeated or failed to pass due to adjournment of the state legislature, while a couple of state legislatures remain in session and the bills are still pending.
These 11 e-cigarette tax proposals include the following:
▶ Hawaii: Legislation introduced would have assessed a tax on e-cigarettes equal to the wholesale cost of the e-cigarette product. This would essentially have been a 100% tax on the wholesale value of the product. The bill was not passed.
▶ Indiana: A bill that would have taxed e-cigarettes at a 24% tobacco products tax rate did not pass the legislature.
▶ Kentucky: Two bills proposing a 15% and a 20% tobacco products tax rate, respectively, were not enacted.
▶ New Jersey: Neither a bill to impose a 75% sales tax on e-cigarettes nor a budget proposal by Gov. Chris Christie to assess the state’s $2.75 cigarette tax rate on e-cigarettes were passed.
▶ New York: A bill to impose a 75% tobacco products excise tax on e-cigarettes remains pending in the state legislature.
▶ Ohio: This is the other state with a pending bill that would impose the state’s cigarette tax rate of $1.85 per pack on e-cigarettes.
▶ Oklahoma: A bill to tax e-cigarettes at a 30% tobacco products tax rate was not passed.
▶ Oregon: Another e-cigarette tax bill that has failed was a proposal to tax e-cigarettes at 81.25% in Oregon.
▶ Rhode Island: The Rhode Island legislature considered, but did not pass, legislation to impose an 80% tobacco products tax on e-cigarettes.
▶ Vermont: A bill that would have taxed e-cigarettes at a 92% tobacco products tax rate failed during Vermont’s legislative session.
▶ Washington: A proposed 95% tobacco products tax rate on e-cigarettes did not obtain legislative approval.
The most common method of taxing e-cigarettes is the assessment of a state’s tobacco products tax rate, but enacting such tax rates has proven to be less than a certainty. With the continued expansion of the e-cigarette market and the ongoing effort by state lawmakers to raise more tax revenue, the coming years will likely see additional legislative proposals to tax e-cigarettes.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.