Update: Proposal to Tax E-Cigarettes at 95% in Washington State Up for Debate in House
Americans for Tax Reform recently sent a letter to the state Senate in Washington outlining our opposition to a proposal which would subject vapor products like e-cigarettes to a new 95 percent state tax. The $40 million annual tax hike would hurt small businesses like convenience stores that are struggling to make ends meet.
Senate Bill 6569 seems to have been defeated in the Ways and Means Committee but an identical proposal has arisen in the Washington House of Representatives. Below is ATR’s letter to the House Finance Committee, where the bill is being considered:
I write today in opposition to House Bill 2795, which would redefine vapor products like e-cigarettes as tobacco substitutes and impose a 95 percent tax on these products. Not only is this bill and its inclusion in the budget a massive tax increase that will hurt small businesses in Washington, it makes little sense from a health perspective as well.
By imposing a 95 percent tax on e-cigarette and e-vapor products, some suggest that H.B. 2759 will generate upwards of $40 million for the state. Small businesses that are struggling to make ends meet will bear the burden of this tax increase. Convenience store owners will be hardest hit because they rely on tobacco and vapor products for a large share of total store sales. This is particularly troubling in a time of tepid economic growth and in light of the 20 new and higher federal taxes that have been imposed by Congress in the last few years.
Additionally, raising taxes on consumers will significantly decrease in-state sales, resulting in increased cross-border tax leakage. The Washington Department of Revenue estimates that the state lost about $376 million in tax revenue in 2012 due to tobacco tax evasion, with more than one third of cigarettes in Washington being contraband. As is the case with traditional tobacco taxes, e-cigarette taxes will prove to be an extremely volatile source of revenue and it is unwise for Washington State to increase its reliance on them.
The proposed 95% tax will make Washington extremely uncompetitive in e-cigarette pricing. That will lead to an increase in smuggling, which will cost Washington small businesses tens of thousands of dollars in lost revenue. This is especially true considering that on Indian lands businesses are not subject to the tax.
Taking aim at e-cigarettes works at cross-purposes with efforts to cut down on the harm associated with smoking. A number of studies have shown that electronic cigarettes stand to improve health and prevent disease. By choosing to “vape” e-cigs instead of smoking traditional tobacco, consumers get their nicotine fix without the combustion and smoke, which are responsible for many of the negative health effects of tobacco cigarettes.
With e-cigarettes, the free market has provided a solution to a problem that social engineers have not been able to address through stiff government regulations. The imposition of new taxes on innovative products that reduce smoking and people’s dependence on tobacco cigarettes is misguided and will impede proven harm reduction methods. It makes little sense in this fragile economy to impose tens and millions of dollars in higher taxes on a product that provides consumers a viable and harmless alternative to traditional tobacco products.
If you have any questions about ATR’s position on this issue, please contact state affairs manager Paul Blair at 202-785-0266 or by email at firstname.lastname@example.org.
President, Americans for Tax Reform
The bill is scheduled to be heard by the House Finance Committee Friday morning at 10AM.