A little more than a year ago the Interim Study Committee on Fiscal Policy heard testimony from the Indiana Chamber and the Alliance for a Healthier Indiana on the impacts of smoking and the importance of raising the cigarette tax. While there was hope for the possibility of a cigarette (and e-cigarette) tax increase last summer, nothing materialized during the 2019 budget session. But this coming cycle could be a different story due to the number of vaping-related illnesses and death in Indiana and across the nation.
Recently, the Fiscal Policy Committee heard testimony from Indiana Chamber President Kevin Brinegar and the Alliance on the impacts of vaping and the need for a tax on e-cigarettes and e-liquids. As was the case last year, the Chamber emphasized Indiana’s abysmal health rankings, including our ranking of 44th best among the 50 states regarding adult smoking. These comments transitioned into the skyrocketing use of e-cigarettes, with an Indiana ranking of third worst nationally.
E-cigarette use is particularly alarming among minors at approximately one of every five high school students. Studies indicate that youth smoking e-cigs are more likely to transition to regular cigarettes. Three deaths in Indiana this year have been attributed to vaping. Additional statistics on e-cigarette use were also provided to the committee. The Chamber believes that the available research leaves no doubt that e-cigarette products should be taxed and at levels equivalent of traditional tobacco products.
While we support a 24% tax at the retail level comparable to tobacco, we could live with a significant tax at the wholesale level. And although this is not the charge of this committee, we recommend increasing the legal age of tobacco products and e-cigarettes to age 21. Tobacco Free Indiana also testified that the amount of taxation should be significant enough to reduce usage, especially among youth who are very price sensitive, and taxes should be implemented regardless of nicotine content.
Nineteen states and the District of Columbia have enacted taxes on vaping products. Three states in close proximity to Indiana have imposed vaping taxes: Wisconsin, Illinois and Ohio. Illinois’ tax on e-cigarettes is for both the device and solution at 15% of the wholesale price. Ohio has enacted a 10-cent per ml/gram tax on a liquid or non-liquid vaping substance that contains nicotine. Meanwhile, Wisconsin’s tax is five cents per ml and is estimated to raise $5.5 million in revenue (popular vape container sizes are 30 and 60 ml, which constitutes a $1.50 and $3.00 tax per container, respectively).
As expected, the vaping industry opposes a tax on e-cigarettes and e-liquids. However, most of the industry representatives did say that if there is going to be a tax that it should be at the wholesale level. The Indiana Department of Revenue testified that it is neutral on the issue and that taxing at the retail level would be the easiest at the present time, but there also would be a higher chance of fraud compared to a wholesale tax. Such a retail taxing system could be implemented by 2021. It appears that the department has backed down somewhat from its previous position that appeared to be more favorable to the retail strategy.
As a reminder, late in the 2019 legislative session a proposal was made to implement a 5% retail tax, but the Chamber pushed back and said that it would have too little impact. It is our belief that legislators appear inclined to impose some type of e-cigarette tax even more so than a regular cigarette tax increase. Whether or not that will happen in a short session remains to be seen. However, on a more positive note, raising the legal age for smoking or vaping to 21 may be gaining more momentum for 2020.
Resource: Mike Ripley at (317) 264-6883 or email: [email protected]