Taxing question of e-cigarettes

The US-based Tax Foundation yesterday published a new summary and analysis of vapor product taxes in the US, a subject that it says has received little attention in the past.

‘Many states are grappling with the questions of if and how to tax the new market of vapor products, also known as “e-cigarettes”,’ the foundation said in a news release.

‘Although there is a substantial amount of ongoing research about the health costs of vapor products, there has not been much in the way of guidance on how best to tax them.

‘Currently, only a small handful of states tax the products, but do so in dramatically different ways.’

The study summarizes the basics of what the products are and how they compare to cigarettes in terms of production and health risks, and it provides a detailed overview of enacted and proposed taxes in each state.

The key findings include:

• As of January 1, 2016, four states, the District of Columbia, and three local jurisdictions had enacted taxes on vapor products (electronic cigarettes), but their methods and levels of taxation vary dramatically.
• In 2015, at least an additional 23 states considered excise taxes on vapor products.
• Vapor products are generally found to have a much lower risk profile than traditional incinerated cigarettes.
• Public Health England, housed in the British Department of Health, issued findings that vapor products are 95 percent less harmful than are cigarettes and can serve as an effective tobacco-cessation method.
• Vapor products are likely have much lower externalities than are traditional cigarettes, and it follows that the excise taxes on the products should be lower or non-existent.

Policymakers should avoid extending punitive tax rates from traditional cigarettes to vapor products because this would limit the consumer’s ability to use vapor products to quit cigarettes, said the foundation’s economist and director of state projects Scott Drenkar.

“Our first reaction should not be to impose cigarette taxes on what is fundamentally a different product.”

The report goes on to discuss why vapor taxes should be based on the volume of nicotine liquid in the product, rather than on the wholesale price, and how pending federal regulation would impact state tax policies.

The full report, Vapor Products and Tax Policy, is at: http://taxfoundation.org/article/vapor-products-and-tax-policy.