ENDS Taxes
Studies
2021 (Revision): The Effects of E-Cigarette Taxes on E-Cigarette Prices and Tobacco Product Sales: Evidence from Retail Panel Data
- Cigarettes continue to kill nearly 480,000 Americans each year, and several reviews support the conclusion that e-cigarettes contain fewer toxicants and are safer for non-pregnant adults than cigarettes. Our results suggest that e-cigarettes are elastic goods and their use substantially reduces cigarette sales.
- Despite potentially detrimental unintended consequences of e-cigarette taxes, between the end of our study period (December 2017) and December 2020, 20 additional states enacted e-cigarette taxes, bringing the total to 28.
- We find robust evidence that e-cigarette taxes are over-shifted to consumers. Our results here suggest that state-level e-cigarette taxes are passed through to prices at a higher level than e-cigarette taxes enacted at the sub-state level.
- Here, a 1% increase in cigarette taxes reduces cigarette sales while a 1% increase in e-cigarette taxes increases cigarette sales.
- In late February 2020, the U.S. House of Representatives approved a national e-cigarette tax proportional to the federal cigarette tax (House Bill 2339 2020). The bill specifies a tax rate of $50.33 per 1,810 milligrams of nicotine (or $0.028 per milligram). JUUL pods at the time of writing contain 59 milligrams/ml (at 5% nicotine volume). Assuming this conversion, we simulate that, if this bill were to become law, the tax could raise e-cigarette prices by $2.36 per ml ($0.0278 x 59 x 1.44 using Table 3), would reduce NRSD e-cigarette purchases by 1,784 ml per 100,000 adults , and would increase NRSD cigarette pack purchases by 26,736 packs per 100,000 adults. Our rate of substitution would be halved when compensating for the NRSD capturing roughly twice the share of cigarette sales than e-cigarette sales, which brings us to a substitution rate of one pod = 7.5 packs.
- A limitation of our study is the reliance on e-cigarettes sold through retail stores, so we cannot capture e-cigarettes sold through specialty vape shops and online. However, e-cigarette taxes are collected for both online and vape shop purchases in the same way they are collected in retail stores, so we are unaware of any financial incentive to change shopping venue in response to an e-cigarette tax.
- We find evidence that adults are more likely to use e-cigarettes when traditional cigarette taxes rise.
- Traditional cigarette taxes appear to be less effective – in terms of reducing smoking – when a locality has also adopted an e-cigarette tax.
- This finding suggests that the combination of a traditional cigarette tax hike and e-cigarette tax prevents smokers for either quitting or switching to a less harmful product, both actions would improve smoker health by minimizing exposure to carcinogens and other toxins contained in traditional cigarettes.
- Our research contributes further evidence from differences-in-differences methods that regulating e-cigarettes have the unintended consequence of raising traditional cigarette use; while neither product is harmless, the clinical literature strongly suggests that e-cigarettes are the less harmful product. These results suggest caution in regulating e-cigarettes because they may increase smoking of traditional cigarettes.
- The vapor industry is a dynamic part of the U.S. economy, accounting for about $24.46 billion in output or about 0.14 percent of GDP. It employs approximately 166,007 Americans who earned wages and benefits of about $7.90 billion.
- Members of the industry and their employees paid $3.31 billion in federal, state and local taxes. This does not include state and local sales taxes or excise taxes that may apply for specific retail purchases which are estimated to total $1.67 billion.
- Original link to the study
Resources
Policy Analysis
- Coming Soon! Tobacco & Vaping 101: United States
- 50 state and Washington DC analysis of smoking, vaping, taxes, MSA funds, and prevention / cessesation funding.
Tax Information
- Page contains several maps of taxes on several kinds of tobacco and vapor products.
Articles / OP-Eds
- Data from the Centers for Disease Control and Prevention’s (CDC) youth surveys indicate that vaping rates among high school students increased between 2017-2019, after vape taxes were imposed in several jurisdictions.
- Of eight states that had e-cigarette taxes prior to 2019, seven saw an increase in proportions of young adult smokers after their state e-cigarette tax went into effect.
- California had a 34 percent increase in people aged 18-24 who smoked after the passage of an e-cigarette tax. Deleware's increase was 48.6 percent. Pennsylvania passed a 40% wholesale tax on vapor products, which closed 1/3 of the vape shops in that state and increased smoking in the 18-24 year old age group by 19 percent. Kansas, Louisiana, Minnesota and West Virginia also say increases in smoking in young adults after passing taxes on vapor products.
- Peer-reviewed studies have found that high taxation rates on e-cigarettes increase smoking and/or prevent adult smokers from transitioning to less harmful alternatives.
2020: Article: Native American Reservations a Haven for New York Vape Shops
- New York State’s 20 percent excise tax on vapor products and nearly 9 percent sales tax also do not apply to the Shinnecock and other tribes. Essentially, Silva said, patrons can spend almost 30 percent less than they normally spend, and nobody has to worry about breaking the law.
Videos
2019: CBS News: E-cigarette tax could deter smokers from quitting, study says
- Economists say that imposing a federal tax on vaping could discourage millions of smokers from kicking the habit.
Blogs
- By James Dunworth
- Could billions of dollars in tobacco taxes be one of the factors behind the attack on a disruptive industry?
- Several posts on vaping and taxes
Unintended Consequences of Taxes and Bans
- Accused of selling "loosies"
Learning From Taxes on Other Nicotine Products
2021: Article: Emails show negotiations involving Colorado governor, cigarette giant that led to tobacco tax hike
- The emails obtained by The Sun about the 2020 legislation, including one labeled as a “draft term sheet” and marked “highly confidential,” show Altria was negotiating the measure with Polis and health groups.
- While Proposition EE raises taxes on most tobacco and nicotine products in Colorado, it actually slashes them for so-called modified-risk tobacco products. Altria sees those products, which are part its IQOS system, as its future. Vaping shops objected to the MRTP discount, saying they lack the resources to seek an MRTP designation for their merchandise from federal regulators and that Altria would be given another market advantage.
2021: Article: Black market cigarettes a growing boom trade in Western Australia, warns ex-top border cop
- The founder of Border Force's illegal tobacco squad says one in five cigarettes smoked in Australia is illegal and demand has spawned a smuggling trade worth hundreds of millions of dollars each year, with a recent record-breaking case in Western Australia.
- the black market for illegal tobacco – imported mainly from Asia and the Middle East – has grown, with the ATO estimating about $650 million in potential tobacco excise revenue was lost in 2017-18.
- The potential lost tax revenue of the products was estimated by Alberta Gaming, Liquor and Cannabis (AGLC) to be more than $972,000.
2017: Article: Second Illinois man charged with using fake business to buy and sell $3M in tax-exempt cigarettes
- Most of the cigarettes Khatib bought were allegedly sold in Chicago, where the state excise tax is $1.98 per pack compared to 17 cents per pack in Missouri. Khatib and Qaddoumi allegedly kept the inflated profits.
2017: Article: Women allegedly bought up cigarettes in low-tax Missouri to sell in high-tax New York
- The women admitted they had driven around the St. Louis area in a rented car buying them up [160 cartons of cigarettes], with plans to sell them back in New York. In addition to the recovered cigarette cartons, police found about two dozen fake credit cards that the women apparently used to buy them.
2015: Report: Understanding the U.S. Illicit Tobacco Market
- Tobacco use has declined because of measures such as high taxes on tobacco products and bans on advertising, but worldwide there are still more than one billion people who regularly use tobacco, including many who purchase products illicitly. By contrast to many other commodities, taxes comprise a substantial portion of the retail price of cigarettes in the United States and most other nations. Large tax differentials between jurisdictions increase incentives for participation in existing illicit tobacco markets. In the United States, the illicit tobacco market consists mostly of bootlegging from low-tax states to high-tax states and is less affected by large-scale smuggling or illegal production as in other countries.
- This report estimates the portion of the total U.S. tobacco market represented by illicit sales has grown in recent years and is now between 8.5 percent and 21 percent. This represents between 1.24 to 2.91 billion packs of cigarettes annually and between $2.95 billion and $6.92 billion in lost gross state and local tax revenues.
- PDF version
- Citation: National Research Council. 2015. Understanding the U.S. Illicit Tobacco Market: Characteristics, Policy Context, and Lessons from International Experiences. Washington, DC: The National Academies Press. https://doi.org/10.17226/19016.
2013: Article: Cigarette smuggling makes WA tax revenue go up in smoke
- Washington’s Department of Revenue estimates the state lost about $376 million in tax revenue in 2012 to cigarette tax evasion. An estimated 35 percent of the cigarettes in Washington are contraband.
See Also:
- Taxes and bans often raise the concern over the creation of black markets
- Bans and tax increases often have the same reasons for opposition