Do Most States View E-Cigarettes as Potential Revenue? Do Most States View E-Cigarettes as Potential Revenue?

As electronic cigarettes grow in popularity, many states are considering new policies to determine where use of e-cigs should be allowed and how they should be regulated. But is the sudden interest in electronic cigarettes more about health concerns or mostly about a potential money grab? In a recent article from USA Today, reporters speculated that the state’s primary target could be revenue.

Rumors about coming FDA regulations have circulated for months, but in the absence of any real decisions from Washington, individual states are moving forward with their own mandates for e-cigarettes. In 2014, e-cigs are projected to be among the big ticket issues in state capitols with legislatures deciding how to classify, regulate, and tax vaping products.

Ohio Attorney General Mike DeWine said, “States are scrambling to figure out how to deal with this.” He anticipated the fight would span all fifty states saying, “It’s going to be fought out in one jurisdiction after another.” DeWine was the leading writer of an October letter calling for e-cigarettes to be classified as “tobacco products” with corresponding regulations.

At this point, the federal government has not made any rulings about electronic cigarettes and it is up to individual jurisdictions to decide local laws about e-cigs. The FDA was expected to release a plan for e-cig regulation in November, but the government shutdown led to delays and a month later, there has been no FDA update.

So for now, the states have to choose their own e-cig rules. “We think it’s really important that states act,” said Danny McGoldrick, the vice-president of research at the Campaign for Tobacco-Free Kids. So far, over half of states have already banned selling electronic cigarettes to minors. There are four states that have banned using e-cigs in indoor areas where tobacco cigarettes are prohibited. These include Utah, Arkansas, North Dakota, and New Jersey. Small local governments and city councils have also taken steps to enact new rules for e-cig use.

The debate over electronic cigarettes gets intense at times, with a great deal of research still unknown. While trials and studies are constantly underway, many of them are not published to the mass media and the general population never hears the results.

Regardless of what states decide for health reasons, it’s possible that some will embrace e-cig regulations for tax reasons. By enacting new taxes on electronic cigarettes or including them in existing tobacco taxation, states stand to benefit heavily. While tobacco smoking is declining and the revenue is steadily decreasing, electronic cigarettes are growing in popularity with a steady increase in profits.

At this time, Minnesota is the only state to have a specific tax policy for electronic cigarettes. In 2012, Minnesota lawmakers decided that e-cigs were subject to a 95 percent tax that essentially acts as a sales tax, added to the wholesale cost. The result is that e-cigs are taxed at a higher rate than tobacco cigs. The result is some heavily padded pockets for the state. In fact, Minnesota is expected to collect $1.16 billion in tax revenue in the 2014-2015 fiscal year.

Apart from Minnesota, most states only apply a basic sales tax to e-cigarettes. However, USA Today reported that at least 30 states are considering adding new e-cig taxes in the next year. Scott Drenkard from the Tax Foundation, a research group that is anti-taxes said, “I will be watching to see if more proposals like Minnesota are replicated in the states… but I hope they are not.”

Tax experts insist that placing new taxes on electronic cigarettes is really pointless and unjustifiable. While tobacco cigarettes are taxes because of their health risks, there is no confirmed health risks associated with electronic cigarettes. They are only guilty of helping people find a bridge to a tobacco-free lifestyle. So why tax e-cigs?

“There is zero, emphasis on zero, justification for taxing e-cigarettes right now,” said David Brunori from Tax Analysts. “What this is… is a money grab. It’s a way of trying to find revenue to replace lost tobacco taxes.” The nonpartisan Tax Policy Center reports that state and local tax revenue have started to level off since smoking has declined. Even with higher tobacco taxes, revenue is staying leveled off and is not increasing.

The dangerous aspect of this whole debate is how it will impact the average smoker. By taxing electronic cigarettes, it could potentially make them a less cost effective option and eliminate some of the benefits that make them attractive. Discouraging use should never ben the goal. “Cigarettes are sold everywhere in the world, and we want to make sure that the e-cigarette is sold as a less-harmful alternative right there next to it,” said Ray Story of the Tobacco Vapor Electronic Cigarette Association.

Story went on to say, “We should expand the use; not restrict it.” He pointed out that e-cigs could potentially reduce the number of people using tobacco, meaning it “will have made the greatest impact on humanity ever.”

Do you think states will tax e-cigs purely to increase revenue? Is it more about money than health?


Katie Bercham - CocktailNerd Editor

Katie actually had a negative first experience of electronic cigarettes, picking up a cheap and horrible model from my local mall. Thanks to a chance meeting with co-editor David, she hasn’t had a tobacco cigarette in over 5 years. She brings a strong female voice to the e-cig community.