As smokers seek to quit smoking, e-cigarettes are becoming more popular as a means to stop smoking. Data shows that one in five smokers have either switched to e-cigarettes or at least tried them. This fact has state legislators and governors looking for ways to tax e-cigarettes.
Michigan leads the way
Michigan governor Rick Snyder is heading the parade to tax e-cigarettes. Snyder stated he wants e-cigarettes treated as tobacco. A bill is already in the Michigan state legislature to define e-cigarettes as being in the same class as real tobacco products.
The Department of Community Health in Michigan is behind the push to regulate and tax e-cigarettes. The proposed legislation would not tax the product (yet), but states that are hard up for cash regard an e-cigarette tax as a way to generate more revenues from people’s pocketbooks.
The nature of the technology
E-cigarettes are powered by a battery. The battery heats a cartridge filled with flavored nicotine. The liquid heats and creates a vapor that simulates smoke.
The result is that the user takes a drag and gets his nicotine fix without inhaling the other harmful byproducts of traditional cigarette smoke. Recent studies found a consensus that inhaling this vapor is not as unhealthy as cigarette smoke; however, puffing on e-cigarettes has not been deemed entirely safe.
As it stands today, e-cigarettes are subject to a state sales tax. Sales of e-cigarettes have boomed in the last few years. More than four million e-cigarettes were sold in 2013. That’s a massive jump from 100,000 in 2008 and the growing sales have states seeing dollar signs as they struggle to cover their budgets.
Will a tax be good or bad, in the long run?
Fans and makers of e-cigarettes argue that a tax will drive small businesses out of the industry. A tax would also discourage smokers who want to find an alternative to smoking with the hope of quitting.
State legislatures have not accepted that rationale. More than two dozen states are proposing to roll out new taxes on e-cigarettes.
Minnesota was the first to attach a tax to e-cigarettes. Lawmakers passed the legislation in 2012. It’s expected that Minnesota will generate $1.16 billion in additional revenue in fiscal year 2014, according to Fox News.
Under the law, users, distributors, and retailers will be taxed. All these taxes will likely be paid for by the end user, ultimately.
States regard the new revenue source impossible to resist
Fox News also reported that New Jersey is preparing to levy its own tax. New Jersey Governor Chris Christie is pushing for a tax of $2.70 per e-cigarette pack. Critics of the New Jersey e-cigarette tax say that it will create e-cigarette smuggling rings that will operate in the state. Americans for Tax Reform estimate that 40 percent of all cigarettes smoked in the state are brought in by smugglers.
A tax on e-cigarettes is probably inevitable, because billions of dollars in revenues will help fill state coffers. Many state governments are desperate for cash and will regard the tax as irresistible.