Vaping Taxes & Smoking

February 22, 2020

We’ve talked about taxes on tobacco and cigarettes before on our blog. Taxes on tobacco and nicotine products have gained attention in the media recently following the release of a new study on the effect of a Minnesota tax on vaping products. The implications of this study are quite controversial; they may suggest that heavy taxes on vaping (or “e-cigarettes”) products may contribute to slower declines in cigarette cessation rates. Notably, 20 states, plus the District of Columbia, have passed taxes on vaping products. Massachusetts can be counted alongside Minnesota as another state with a relatively high tax (75%) on electronic cigarettes. Although the results of the Minnesota experiment may not be ideal, there is still room for debate as to the precise effect of high taxes on vapor products.

Minnesota’s Vaping Taxes Study

In this post, we will go over the basics of the Minnesota study and then discuss how this study could impact policy here in New York State. As New Yorkers know, we have fiscal issues to worry about, so a tax increase on vapingmay be temping. A good argument could be made that heavy vaping taxes are justified from both a health and fiscal perspective. Let’s examine the results of the Minnesota study and then discuss its implications for New York.

Basics of the Minnesota Study

Minnesota implemented a steep tax on vaping products (95%) back in 2013. Prior to 2013, Minnesota had a vaping tax, but it was much lower (35%). This tax applies to the wholesale price of the product. The study examined the decrease in cigarette smoking rate during a certain period of time. It looked at adult smokers, youth vaping and high school students.Essentially, the researchers concluded that the heavy vaping tax actually prevented about 32,000 traditional cigarette smokers, or users of tobacco products, from quitting during the time frame. Applied at the national level, this would mean about 1.83 million additional smokers throughout the United States over a 10 year period.

Takeaways from the Minnesota Study

The logic underlying the study conclusions is that heavy vape taxes prevented cigarette smokers from switching over to vaping. And, because the heavy taxes led to a relatively higher price, the tax also prevented many people from becoming new e-cigarette consumers.

In short, the vaping tax led to a slower rate of decline for cigarette consumption. That is, cigarette consumption would’ve likely declined at a faster rate in the absence of the heavy vaping tax. Before this is taken as evidence against the desirability of such a tax, we have to remember that this study doesn’t necessarily establish a causal relationship between the vaping tax and cigarette smoking cessation rates. In other words, we can’t infer that cessation rates would’ve been dramatically different if the tax hadn’t been implemented. Cessation rates are a function of multiple factors, not merely price, so we have to be cautious before jumping to conclusions or policy considerations.

Lessons for New York State

Many observers and commentators have looked at this study from a health perspective. They look at the possible causal relationship between the vaping tax and cessation rates. But we also have to consider another angle: the fiscal perspective. Taxes aren’t just used to deter behavior, they’re also used to generate revenue. This is something that New York State needs to consider, in addition to health issues associated with smoking and vaping. As we’ve mentioned, New York is facing a multi-billion dollar budget deficit, so additional sources of revenue are welcome. A heavy tax on vaping products may provide extra revenue for a state in need of more income. The results of the Minnesota study may give give us pause. One reason is because such a tax could possiby have adverse long-term health consequences. But that’s only a possibility, not a certainty.

Contact MC&C for More Information

In the future, we will likely come back and discuss vaping in more detail. This is an important topic. It’ll likely figure prominently in future debates about New York State tax policy, its young people and public health. We may see heavy vaping taxes in NYS very soon. To learn more abouot tobacco taxes, vaping taxes, or other related topics, reach out to Mackay, Caswell & Callahan, P.C. We regularly handles cases involving sales taxes, excise taxes, NYS income taxes, federal income taxes, and others. Get in touch with us today and one of our top New York City tax attorneys will respond immediately.

Image credit: Mike Mozart

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