E-Cigarettes: Regulation and Taxation

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Early in 2015, Michigan Gov. Rick Snyder vetoed a trio of bills left over from the 2014 legislative session that would have prohibited selling, giving or furnishing minors e-cigarettes and other vapor products. The bills also would have prohibited e-cigarettes from being defined or regulated as a tobacco product. 

“We need to make sure that e-cigarettes and other nicotine-containing devices are regulated in the best interest of public health. It’s important that these devices be treated like tobacco products and help
people become aware of the dangers e-cigarettes pose,” Snyder said in his veto statement.1

E-Cigarettes and Health Concerns
E-cigarettes are a nicotine delivery system. They heat liquid containing nicotine and flavorings into a vapor by passing it over a small electronic battery. According to The Wall Street Journal, sales grew from
$2 million in 2009 to $722 million in 2013.2

The product originally was sold prepackaged as a cigarette-looking device imported from abroad. American cigarette companies—Altria, Reynolds and Lorillard—now make e-cigarettes with disposable
cartridges that contain the nicotine liquid. Consumers increasingly are building their own vaping devices and loading them with liquids purchased at small vape shops or online.

E-cigarettes are widely believed to be less toxic than combustible tobacco cigarettes. Some believe that smokers can switch to e-cigarettes as a means to stop or reduce smoking, although no comprehensive
research has been released. Some health advocates fear that e-cigarettes may create new smokers, but the product is too new to have scientific studies to support or rebut the claim.

The U.S. Food and Drug Administration in April 2014 released proposed regulations on e-cigarettes. The FDA is using its statutory “deeming” authority to issue regulations on additional tobacco products,
including electronic cigarettes, cigars, pipe tobacco, hookah tobacco, and novel products such as nicotine gels and dissolvables. The new regulations also would include e-cigarette cartridges.3 The original comment period, set to end July 9, 2014, was extended 30 days to Aug. 8, 2014. The FDA declined to extend the comment period again. It has not yet issued final regulations.

Regulating Use of E-Cigarettes
The Michigan veto illustrates one of the primary policy debates related to regulation of e-cigarettes and vaping products. Policymakers have either added e-cigarettes and vapor products to existing definitions of tobacco products, thereby bringing these new products under tobacco restrictions, or they have adopted new policies totally separate from tobacco or smoking policies. 

  • Three states prohibit e-cigarettes in all public places.
  • New Jersey was the first to prohibit e-cigarettes. The state in 2010 added electronic smoking devices to its 2006 New Jersey Smoke-Free Air Act. Utah followed in 2012, amending its Indoor Clean Air Act to include e-cigarettes and heated tobacco products. 
  • Voters in every North Dakota county approved a ballot initiative ban on smoking in public places and in most workplaces on Nov. 6, 2012. The ban covers the use of electronic smoking devices by including the use of e-cigarettes and heated tobacco in the definition of smoking.
  • Thirteen other states have laws or executive orders that regulate the use of e-cigarettes in certain places. These policies apply to schools, state office buildings or correctional facilities.
  • At least 224 local jurisdictions in 27 states ban the use of e-cigarettes in otherwise smokeless venues.
  • Vermont is the only state that requires child resistant packaging for nicotine-containing liquids or gels. The law went into effect Jan. 1, 2015.

Prohibiting Purchase of E-Cigarettes by Minors
Most states have adopted laws to prohibit the purchase of e-cigarettes and related products by minors.

  • Laws in 41 states prohibit the purchase of e-cigarettes by minors.
  • Five of those states—Alabama, Alaska, Nebraska, New Jersey and Utah—define minor for the purpose of the ban as anyone under 19. The other states define minors as youth under 18.
  • In addition to Michigan, eight other states—Maine, Massachusetts, Montana, New Mexico, North Dakota, Oregon, Pennsylvania and Texas—have not adopted purchase bans for minors.

Taxing E-Cigarettes
Only two states impose any type of excise tax on e-cigarettes or vaping products. The debate on taxes extends beyond the question of whether to tax; it also includes how to tax. E-cigarette manufacturers
and retailers argue against a tax equivalent to tobacco (combustible) cigarettes. They say an equivalent tax will discourage the use of e-cigarettes as a less risky alternative to tobacco.

  • Minnesota imposes a tax of 95 percent of the wholesale cost of e-cigarettes and e-vapor liquids. The tax is equivalent to that on combustible cigarettes.
  • North Carolina assesses a tax of 5 cents per liquid milliliter of liquid nicotine. North Carolina-based Reynolds American Inc., the nation’s second largest tobacco company that also sells e-cigarettes, did not oppose the North Carolina tax during the 2014 deliberations.4
  • In 2014, taxing proposals were defeated in 12 states—Delaware, Hawaii, Indiana, Kentucky, New Jersey, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Vermont and Washington.5
  • Tax proposals are still pending in 2015 in the Michigan, New York and Ohio legislatures.6
  • E-cigarette tax bills have been filed in Hawaii and Arkansas for 2015.
  • As 2015 legislative sessions gear up, taxing proposals have been floated in several states, including Indiana, New Jersey, Utah and Washington.7
  • When Missouri adopted its 2014 law to prohibit sale of e-cigarettes to minors, it also included provisions that e-cigarettes cannot be regulated or taxed as a tobacco product.

RESOURCES
1 “Gov. Rick Snyder vetoes bills relating to ‘e-cigarettes.’ Press release, Jan. 16, 2015.
2 “Big Tobacco’s E-Cigarette Push Gets a Reality Check,” The Wall Street Journal, Aug. 26, 2014.
3 “Issue Snapshot on Deeming: Regulating Additional Tobacco Products,” FDA, and Federal Register, Vol. 79,
No. 80
, April 25, 2014.
4 “E-cig tax proposal goes to full House,” Winston-Salem Journal, May 16, 2014.
5 “A Look Back at Tobacco Legislation in 2014,” Convenience Store and Fuel News.
6 Ibid.
7 “States Look to Tax E-Cigarettes,” Stateline, Jan. 23, 2015. 

 

E-Cigarettes: Regulation and Taxation