Key sources of uncertainty include: Useful Data Could Be Available Soon. Alternative Nicotine‑Based Structures Worth Considering. 1325 G St NW Consider How Funding Shortfalls Would Be Handled. Cigarettes are already being smuggled into and around the country in large quantities, and nicotine-containing liquid is coming into the U.S. from questionable sources. In fact, research that looked at the effect of vapor taxes in Minnesota concluded that 32,400 people who would otherwise have quit smoking traditional cigarettes still smoked them as a result of the tax. Income Tax Withholding Tracker: December 1 - December 23 December 23, 2020. Newsom, the tax base may also create some problems. California is the latest state to try to increase vapor taxes. Many States Tax E‑Cigarettes. The proposal also includes a one‑time tax on e‑cigarette inventories to deter businesses from stockpiling untaxed products in advance of the tax increase. Section 1 of the bill added Article 5, which is titled, “Tobacco Sale Prohibition.” For example, the Legislature could levy a higher tax rate on types of e‑cigarettes that are smaller or easier to use, and a lower tax rate on other types. In the context of vapor products and cigarettes, it is important because the risk profiles for the two products are wildly different. tax directly levied on certain goods by a state or federal government Taxing based on nicotine content would favor low-nicotine liquids and could encourage increased consumption in the quantity of liquid. Recommend Very Flexible Approach. Nicotine‑Based Tax Reasonable. We estimate that the new tax would raise tens of millions of dollars annually. Current Cigarette and E‑Cigarette Policies. $8 million of the Governor’s $10 million tax administration proposal would be for a stamp contract. Public Health England, an agency of the English Ministry for Health, concludes that vapor products are 95 percent less harmful than cigarettes. Consequently, depositing the revenues into the General Fund would allow the Legislature to provide some insurance against this revenue uncertainty by pooling the risk across many areas of the budget. Chapters 7 and 8, Statutes of 2016 (SB X2 5, Leno and SB X2 7, Hernandez) raised the minimum age to purchase e‑cigarettes (and other tobacco products) from. In principle, the new tax could lead to higher or lower conventional cigarette smoking. The feasibility and effectiveness of cigarette tax stamps is due, in part, to the high degree of consistency in the size, shape, and amount of tax due on a pack of cigarettes. Tax policy is not conducted in a vacuum and limiting access to vapor products with high taxes could hurt tobacco-related public health priorities. Tax Rate. On top of the dangers to consumers, the legal market would suffer, as untaxed and unregulated products have significant competitive advantages over a limited selection of high-priced legal products. California Governor Gavin Newsom signed Senate Bill (SB) 793 into law, banning the retail sale of flavored tobacco products in the state, effective January 2021. Even if the Legislature shares the administration’s intent of taxing e‑cigarettes and cigarettes at the same rate, a key question remains: what should that rate be? Oregon’s measure increases tobacco taxes $2 per pack, from $1.33 to $3.33, as well as creates a new tax for e-cigarettes. Accordingly, we recommend that the Legislature revisit the e‑cigarette tax rate at least once every two years to assess the need for changes. Effects on Vaping and Smoking. How would the tax rate affect e‑cigarette use? Would you consider telling us more about how we can do better? California income tax withholding in December to date is up 19 percent from 2019, and collections since March 23 are up 5 percent. If the Legislature agrees with the Governor’s focus on reducing youth e‑cigarette use, we suggest it consider alternative nicotine‑based taxes that place higher rates on products that tend to encourage or enable youth use. Our review of available evidence suggests that the proposed tax likely would reduce both youth and adult e‑cigarette use substantially. If, however, the Legislature prefers to deposit the revenue into a special fund, the Governor’s proposed approach is better than a restrictive, formulaic approach. As shown in Figure 3, daily e‑cigarette users are disproportionately young, but the majority are adults. A second, less common type of pack contains 25 cigarettes and requires a $3.59 tax stamp. By Marie Tae McDermott Good morning. In other words, the governor’s proposal does not target the harmful behavior. New Tax on E‑Cigarettes. Tax Likely Would Reduce E‑Cigarette Use Substantially. If the Legislature wishes to enact a new tax on e‑cigarettes, the proposed nicotine‑based tax structure is reasonable. On the other hand, the Legislature would appropriate the funds during the annual budget process, and a wide range of programs would be eligible to receive the funds. State Taxes Cigarettes and E‑Cigarettes. In 1989, California began to tax tobacco products. When Governor Gavin Newsom (D) submits his revised budget proposal on Thursday, it will include a vapor tax increase. Required Adjustments Reduce Tax Rate Over Time. 2020 Virginia 7/1/20 30 cents 60 cents. In September 2019, the Governor issued an executive order directing CDTFA and the California Department of Public Health (CDPH) to develop recommendations and take actions related to e‑cigarettes, including a vaping awareness campaign. Taxing based on nicotine content would require extensive testing, and enforcement would be expensive. The remaining three‑fifths are 25 or older. Ideally, this would mean depositing the revenue into the General Fund. State Taxes Cigarettes. 1. A nationwide survey of high schoolers, published in the fall of 2019, found that 27.5 percent of students had vaped at least once in the prior 30 days, though only 10 percent of students were considered regular users (defined as vaping 20 days out the prior 30). Initial Tax Rate. State. Once the Legislature has chosen a rate, we recommend indexing the rate to inflation and revisiting it frequently to assess whether further adjustments are warranted. Accordingly, if the Legislature chooses to deposit the new e‑cigarette tax revenue into a special fund, appropriating less than $24 million from this fund in 2020‑21 would be prudent. How would the tax interact with other state and federal policies? If the Legislature would like to set the e‑cigarette tax rate based on a comparison to the cigarette tax rate, the comparison should include federal taxes, since they also affect consumers’ behavior. The Governor’s e‑cigarette tax proposal does not include annual inflation adjustments. E‑cigarettes come in a variety of forms, and the mix of available products has changed rapidly in recent years. Pesko, Michael and Casey Warman (2019). In addition to levying an excise tax, the state has undertaken a variety of efforts related to e‑cigarettes, with a particular focus on reducing youth use. In our view, the best available evidence suggests that the proposed tax likely would increase cigarette smoking among adults, at least over the first few years. The effects on youth cigarette smoking are unclear. In this section, we provide information and perspectives for the Legislature to consider as it weighs not just the Governor’s proposal, but also the design of e‑cigarette taxes more broadly. Prices tend to rise over time. Our review of available evidence suggests that the proposed tax likely would reduce both youth and adult e‑cigarette use substantially. The administration, however, has not presented an argument that they should be considered equally harmful. Our work depends on support from members of the public like you. It is estimated for Fiscal Year 2021-2022 a total of $28 million in grant funding will be available statewide to support local enforcement efforts to reduce the illegal sale of tobacco products to minors. If, however, the Legislature prefers to deposit the revenue into a special fund, we view the Governor’s relatively flexible approach much more favorably than a restrictive, formulaic approach. Due to this inflation, the real economic value of any fixed amount of money—such as one dollar per 20 milligrams of nicotine—diminishes over time. The 2020‑21 Governor’s Budget assumes that the proposed e‑cigarette tax would raise $34 million in 2020‑21 and $55 million in 2021‑22. State lawmakers still have to approve the governor’s new budget by mid-June. We also suggest that the Legislature consider a wide range of possible tax rates. The tax would take effect January 1, 2021 and is forecasted to raise $32 million in FY 2021. (Rev. The administration does not appear to have considered this complexity carefully enough to justify the requested appropriation. This report uses the term “e‑cigarettes” to refer to devices that create aerosols containing nicotine—the substance that makes tobacco products addictive. Consider Wide Range of Rates. If the Legislature agrees with the Governor’s focus on reducing youth e‑cigarette use, we suggest it consider alternative nicotine‑based tax structures that could target youth use more effectively. As shown in Figure 2, e‑cigarettes were roughly five to six times as popular as conventional cigarettes among California high school students during the 2017‑18 school year. If the Legislature chooses to enact a new tax on e‑cigarettes, it has a range of options for allocating the resulting revenue. The administration argues that adjusting the new tax for inflation would not be consistent with its goal of aligning the state’s tax on e‑cigarettes with its tax on cigarettes, which is not subject to an inflation adjustment. This would impact not only the large number of small business owners operating vape shops around the state but also convenience stores and gas stations relying heavily on vapers as well as tobacco sales. The Tax Foundation is the nation’s leading independent tax policy nonprofit. Until recently, the state did not require tobacco taxpayers to distinguish e‑cigarettes from other types of tobacco products (such as cigars or chewing tobacco) on their tax returns. Gov. 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