As vaping grows in popularity, it becomes a natural target for governments in need of tax revenue. Because vapor products are usually bought by smokers and ex-smokers, tax authorities correctly assume that money spent on e-cigarettes is money not being spent on traditional tobacco products. Governments have depended upon cigarettes and other tobacco products as a source of income for decades.
Whether vaping devices and e-liquid deserve to be taxed like tobacco is almost beside the point. Governments see them pushing smokers away from tobacco, and they understand that the lost revenue must be made up. Since vaping looks like smoking, and there is substantial public health opposition to vaping, it becomes an attractive target for tobacco tax-addicted politicians.
Vape taxes are still relatively rare, but are now being proposed regularly in the United States and elsewhere. Taxes are usually opposed by advocates for tobacco harm reduction, and representatives of industry trade groups and vaping consumers, and they’re usually supported by tobacco control organizations like the lung and heart associations.
Taxes on specific products — usually called excise taxes — are applied for various reasons: to raise money for the taxing authority, to change the behavior of those being taxed, and to offset environmental and infrastructure costs created by the use of products. Examples include taxing alcohol to dissuade excessive drinking, and taxing gasoline to pay for road maintenance.
Tobacco products have long been a target for excise taxes. Because the harms of smoking impose costs on the whole society (medical care for smokers), proponents of tobacco taxes say that tobacco consumers should foot the bill. Sometimes excise taxes on alcohol or tobacco are called sin taxes, because they also punish the behavior of drinkers and smokers — and in theory help convince the sinners to quit their “wicked ways.”
But because the government becomes dependent on the revenue, if smoking decreases there’s a financial shortfall that must be made up with some other source of income, or else the government must reduce spending. For most U.S. states, the cigarette tax is a major revenue source, and the excise is charged in addition to the standard sales tax assessed on all products sold.
If a new product competes with cigarettes, many lawmakers impulsively want to tax the new product equally to make up the lost revenue. But what if the new product (let’s call it e-cigarettes) might reduce the harm caused by smoking and the associated health costs? That leaves legislators in a quandary — at least the ones who bother studying it.
Often state lawmakers are torn between supporting local businesses like vape shops (who don’t want a tax) and pleasing lobbyists for respected groups like the American Cancer Society and American Lung Association (which consistently support taxes on vapor products). Sometimes the deciding factor is misinformation about the supposed harms of vaping. But sometimes they just need the money.
Most U.S. consumers pay a state sales tax on the vaping products they purchase, so state (and sometimes local) governments already benefit from vape sales even before excise taxes are added. Sales taxes are usually assessed as a percentage of the retail price of the products being purchased. In many other countries, consumers pay a “value added tax” (VAT) that works the same way as a sales tax. As for excise taxes, they come in a couple of basic varieties:
Sometimes these excise taxes are accompanied by a “floor tax,” which allows the state to collect taxes on all products a store has on hand the day the tax goes into effect. Typically, the retailer does an inventory on that day and writes a check to the state for the full amount. If a Pennsylvania store had $50,000 worth of merchandise on hand at inventory, the owner would have been responsible for an immediate $20,000 payment to the state. For small businesses without a lot of cash on hand, a floor tax itself can be life-threatening. The PA vape tax drove more than 100 vape shops out of business in its first year.
There is no federal tax on vaping products. But a 2019 bill introduced in the U.S. House of Representatives by Connecticut Democrat Rosa DeLauro would impose taxes at the same rate as cigarettes and other tobacco products. The legislation (which would also ban flavors and restrict online sales) is new and hasn’t yet been heard in a committee. Like all bills, if it passes the House it will then have to repeat the process in the Senate. Finally, if it passes both houses of Congress, it will go to the President to either sign into law or veto.
Nine states and the District of Columbia currently have some kind of vape tax. Additionally, cities and counties in three other states have their own taxes.
While Alaska doesn’t have a state tax, some municipal areas have their own vape taxes:
The California tax on “other tobacco products” is set yearly by the state Board of Equalization. It mirrors the percentage of all taxes assessed on cigarettes. Originally this amounted to 27% of the wholesale cost, but after Proposition 56 increased the tax on cigarettes from $0.87 to $2.87 a pack, the vape tax increased drastically. For the current year, the tax is 62.78% of the wholesale cost for all nicotine-containing products
A tax of $0.05 per milliliter is charged on nicotine-containing e-liquid
There is no state tax on vapor products in Illinois, but there are taxes in Cook County and the city of Chicago (which is also part of Cook County). Chicago Mayor Rahm Emanuel has been a determined enemy of vaping, and has advocated not just for the current tax, but also for a flavor ban and an additional, larger tax.
A tax of $0.05 per milliliter is charged on all e-liquid, with or without nicotine
A tax of $0.05 per milliliter is charged on nicotine-containing e-liquid
There is no statewide vape tax in Maryland, but one county has a tax:
In 2011 Minnesota became the first state to impose a tax on e-cigarettes. The tax was originally 70% of wholesale cost, but was increased in 2013 to 95% of wholesale on any product that contains nicotine. Cigalikes and pod vapes — and even starter kits that include a bottle of e-liquid — are taxed at 95% of their entire wholesale value, but in bottled e-liquid only the nicotine itself is taxed
A tax of $0.10 per milliliter is charged on nicotine-containing e-liquid
One of the earliest e-liquid taxes was passed in North Carolina, the home of RJ Reynolds and thousands of tobacco farms. The state assesses a $0.05 per milliliter tax on nicotine-containing e-liquid
Probably the best-known vape tax in the country is Pennsylania’s 40% wholesale tax. It originally was assessed on all vapor products, but a court ruled in 2018 that the tax can only be applied to e-liquid and devices that include e-liquid. The PA vapor tax shuttered more than 100 small businesses in the state during the first year after its approval
The nation’s capital classifies vapes as “other tobacco products,” and assesses a tax on the wholesale price based on a rate that is indexed to the wholesale cost of cigarettes. For the current fiscal year, ending in September 2019, the tax is set at 96% of the wholesale cost for devices and nicotine-containing e-liquid — the highest percentage tax in the U.S.
A tax of $0.075 per milliliter is charged on all e-liquid, with or without nicotine
Following a year of growing panic over teenage vaping, state legislators in 2019 are proposing all manner of restrictions on vapes. There may be more state taxes on the way too. According to the Vapor Technology Association (VTA), legislators in 20 states have introduced tax bills during the young 2019 legislative session. Among them are a 92% wholesale tax in Vermont and an 86% tax in Utah.
As in the United States, legislators around the world don’t really understand vapor products yet. The new products seem to lawmakers like a threat to cigarette tax revenue (which they truly are), so the impulse if often to impose high taxes and hope for the best.
A tax of 10 leke ($0.091 US) per milliliter is charged on nicotine-containing e-liquid
This new tax, which takes effect on Feb. 10, 2019, is 20 manats ($11.60 US) per liter, or about $0.01 per milliliter, on all e-liquid
The tax is 100% of the pre-tax price on nicotine-containing e-liquid. That equates to 50% of the retail price. The purpose of the tax is unclear, since vapes are supposedly banned in the country
Although Croatia has an e-liquid tax on the books, it is currently set at zero
A tax of €0.12 ($0.14 US) per milliliter is charged on all e-liquid
A tax of €0.20 ($0.23 US) per milliliter is charged on all e-liquid
A tax of €0.30 ($0.34 US) per milliliter is charged on all e-liquid
A tax of €0.10 ($0.11 US) per milliliter is charged on all e-liquid
A tax of HUF 70 ($0.25 US) per milliliter is charged on all e-liquid
The Indonesian tax is 57% of the retail price, and seems to only be meant for nicotine-containing e-liquid (“extracts and essences of tobacco” is the wording). The country’s officials seem to prefer that the citizens keep smoking
After years of punishing consumers with a tax that made vaping twice as expensive as smoking, the Italian parliament approved a new, lower tax rate on e-liquid in late 2018. The new tax is 80-90% lower than the original. The 2018 tax amounts to €0.08 ($0.09 US) per milliliter for nicotine-containing e-liquid, and €0.04 ($0.05 US) for zero-nicotine products. For Italian vapers who choose to make their own e-liquid, PG, VG, and flavorings are not taxed
Although Kazakhstan has an e-liquid tax on the books, it is currently set at zero
The Kenyan tax, which was implemented in 2015, is 3,000 Kenyan shillings ($29.95 US) on devices, and 2,000 ($19.97 US) on refills. The taxes make vaping far more expensive than smoking (the cigarette tax is $0.50 per pack) — and are probably the highest vape taxes in the world
The unusual Latvian tax uses two bases to calculate excise on e-liquid: there is a €0.01 ($0.01 US) per milliliter tax, and an additional tax (€0.005 per milligram) on the weight of the nicotine used
A tax of €0.90 ($1.02 US) per milliliter is charged on all e-liquid
The Polish parliament passed an excise tax on e-liquid in 2017, but has postponed implementing it. The tax is currently set at zero until June 30, 2020
A tax of €0.60 ($0.68 US) per milliliter is charged on nicotine-containing e-liquid
A tax of €0.11 ($0.12 US) per milliliter is charged on nicotine-containing e-liquid. There is a method by which the tax can be adjusted annually based on consumer price increases
Disposable “ENDS” products (like cigalikes) are taxed at 40 rubles ($0.61 US) per unit. Nicotine-containing e-liquid is taxed at 10 rubles $0.15 US) per milliliter
A tax of RSO 4.24 ($0.04 US) per milliliter is charged on all e-liquid
A tax of €0.18 ($0.20 US) per milliliter is charged on nicotine-containing e-liquid
The first country to impose a national vape tax was the Republic of Korea (South Korea) — in 2011, the same year Minnesota began taxing e-liquid. Currently the country has four separate taxes on e-liquid, each earmarked for a specific spending purpose (the National Health Promotion Fund is one). (This is similar to the United States, where the federal cigarette tax was originally earmarked to pay for the Children’s Health Insurance Program — CHIP). The various South Korean e-liquid taxes add up to a whopping 1,799 won ($1.60 US) per milliliter, and there is also a waste tax on disposable cartridges (cartomizers and pods) of 24.2 won ($0.02 US) per 20 cartridges
A tax of 2,000 krona ($215.92 US) per liter (or 2 krona per milliliter — $0.22 US) is charged on nicotine-containing e-liquid
In January 2018, the European Commission decided not to impose an EU-wide tax on vapor products immediately. The decision was attributed to a lack of information about the vaping market, which the commission believes will be remedied through the reporting requirements in the Tobacco Products Directive (TPD).
The tax issue will be revisited in 2019 as part of a re-evaluation of the TPD. At that time it is possible the commission will pursue implementation of taxes on e-cigarettes and other vaping products.
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