Will new tax “vaporize” e-cigarette industry?

Will new tax “vaporize” e-cigarette industry?
A Senate bill would impose a new tax on the sale of vaping products to fund cancer research, while critics say it could harm the small businesses that sell them. Photo: freepik.com

Washington state currently levies an excise tax on cigarettes and other tobacco products that during the latest fiscal year brought in $414 million. Now, a bipartisan group of lawmakers want to apply a similar tax to vaping products, also known as e-cigarettes, to pay for cancer research. However, others say the tax could “vaporize” the businesses selling those products.

Proponents of SB 5986 sponsored by Sen. John Braun (R-20) argued at a Mar. 25 public hearing of Senate Ways and Means Committee that the bill will help discourage vaping among youth and promote better health choices.

Under SB 5986, a tax would be imposed on vapor products of $.05 per millimeter of solution. It would also place a tax on heated tobacco products of $.40 per ounce. The tax is estimated to generate $37.9 million from this biennium through 2025. Half the revenue would go to the Andy Hill Cancer Research Fund, while the other half would go into a new public health services account. The state Department of Health and local health jurisdictions would determine the best “allocation and distribution of funds” from the new account.

Hill was the former chair of Senate Ways and Means Committee representing the 45th legislative district and died in 2016 from lung cancer. His widow, Molly Hill was among those testifying in support of the bill.

Yet, small business owners testifying at the hearing said it would undermine their ability to make a profit, and they feel they’re being left out of the conversation.

“We have solutions that can work,” vape shop owner Shaun D’Sylva told committee members. “You need to engage with us. We’re not invited to the table. We find out about these bills and we have to come down here to protect our business. It’s very frustrating to be fighting this battle over and over again.”

The bill’s cosponsors are Sens. Karen Keiser (D-33), Patty Kuderer (D-48), Kevin Van De Wege (D-24). An alternative proposal in the House is HB 1873 sponsored by Rep. Gerry Pollet (D-46), which has been referred to the Appropriations Committee. A similar tax proposal was introduced by Pollet during the 2015 legislative session via HB 2211; it managed to clear the House Finance Committee, but never got out of the Rules Committee.

Currently, the state’s excise tax on cigarettes is $3.03 per pack of 20, with the funds deposited into the general fund that covers most of the operating budget. While cigarette and tobacco tax generated $414 million in fiscal year 2018, it represents a significant overall decline in revenue from previous years. In the 2016 fiscal year, the tax generated $443 million, while the state got $450 million from the tax in the 2013 fiscal year. However, that is still almost $30 million less than the $479 million the state got in the 2011 fiscal year. However, in 2006 the state received $462 million which, when adjusted for inflation to 2011 dollars, was $515 million – and $579 million in 2019 dollars.

In 2016, the state legislature approved SB 6328 which regulates the sale of vaping products through the Washington State Liquor and Cannabis Board. The law also restricts use to people 18 years or older and prohibits its use within 500 ft. of certain facilities, including schools and elevators.

During the public hearing, Braun said the bill “recognizes that these (products) are not all the same and probably deserve different tax rates. This is a product that is not quite like tobacco or other tobacco products and probably in my mind shouldn’t be taxed at the same rate. But at the same time, it’s not bottled water, either, and it currently is taxed at the rate of bottled water.”

While much of the public hearing focused on the health concerns related to vaping compared to traditional tobacco products, store owners highlighted the detrimental impact to the health of their industry.

In one sense, that outcome is seen as a feature, not a bug, by some of its supporters. Fred Hutchison Cancer Research Center lobbyist Thomas Bates argued that the bill is one of several “taxation approaches to reduce use and invest in public health. We’re at a critical time when it comes to vapor products.”

However, fewer sales inevitably leads to lower profits for the roughly 200 stores in Washington that primarily sell vaping products.

“I think this is a bill that will hurt us pretty bad(ly),” Cloud 509 manager Anthony Covert told committee members. He added that “if kids want to vape…. they’re going to find ways to get it.

Jeff Willis told the committee that rather than funding cancer research the bill is “taking away this industry.”

Washington Retail Association President Mark Johnson cautioned lawmakers that the increase costs might shift sales to tribal smoke shops or online stores. A similar warning was made by Vape Crusaders CEO Jason Weber. “I get you think that you will keep kids from getting a hold of these products by raising prices, but I can assure you that won’t be the case. All you will accomplish is sending adults back to smoking.”

SB 5986 is not scheduled for any further committee action.

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