As shown in Figure 3, daily e‑cigarette users are disproportionately young, but the majority are adults. Our review of available evidence suggests that the proposed tax likely would reduce both youth and adult e‑cigarette use substantially. Revenues. In this interactive map, SalesTaxHandbook has … The proposed tax would go into effect on January 1, 2021. 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. Deng, Xueting and Yuqing Zheng (2019). 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. How would the tax rate affect other outcomes, such as cigarette smoking? This inconsistency goes against the concept of harm reduction, which is the approach that it is more practical to reduce harm associated with use of certain goods than avoiding it completely through bans or punitive level taxation. Governor’s Revenue Estimates. Our current best estimate is that the tax initially would raise tens of millions of dollars annually. As a result, the state did not collect any administrative data on e‑cigarette sales. 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. This year, Kentucky, Utah, Virginia, and Wyoming have already passed increases to vapor taxes, which means 25 states and the District of Columbia now tax vapor products. This report uses the term “e‑cigarettes” to refer to devices that create aerosols containing nicotine—the substance that makes tobacco products addictive. California is one of 18 states that currently levy statewide excise taxes on e‑cigarettes. Stay up on the tax news and analysis that matters to you. The administration, however, has not presented an argument that they should be considered equally harmful. Due to this variation, the Governor’s proposal to tax e‑cigarettes based on nicotine content would raise the cost of nicotine more directly and consistently than a price‑based, volume‑based, or cartridge‑based tax. California levies a $2.87 per pack excise tax on cigarettes. The intent of this proposal is to create a system of tax stamps analogous to the ones used in the state’s cigarette tax program. The cost of implementing the proposed e‑cigarette tax includes some items that are not included in the Governor’s January budget proposals. We recommend that the Legislature take an approach to revenue allocation that prioritizes flexibility. The Governor’s e‑cigarette tax proposal does not include annual inflation adjustments. “The Effects of E‑Cigarette Taxes on E‑Cigarette Prices and Tobacco Product Sales: Evidence From Retail Panel Data.” National Bureau of Economic Research Working Paper 26724. Year. Newsom is proposing a $2 tax for every 40 milligrams of nicotine in an e-cigarette. Why Not Consider Federal Taxes? E‑cigarettes come in a variety of forms, and the mix of available products has changed rapidly in recent years. California currently taxes vapor products at 59.27 percent of wholesale value, but the proposal would impose an additional tax at a rate of $2 for each 40 milligrams of nicotine in the product. The California Department of Tax and Fee Administration (CDTFA) must adjust the tax rate on non‑cigarette tobacco products (including e‑cigarettes) annually based on a formula originally established by Proposition 99 of 1988 and modified by subsequent ballot measures. 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. In California, cigarettes are subject to a state excise tax of $0.87 per pack of 20. Monday: A look at a few of the laws that went into effect on Jan. 1. Newsom’s proposal would, if the tax is passed on to the consumer, increase the price of a JUUL 4-pack by $8.25 (JUUL is the most popular vapor product)—not including the existing wholesale tax. Suite 950 The amount of nicotine contained in e‑cigarette liquid can vary widely, even for a given volume and price. We also suggest that the Legislature consider a wide range of possible tax rates. tax directly levied on certain goods by a state or federal government Cotti, Chad, Erik Nesson, and Nathan Tefft (2018). Policymakers should not lose sight of these unintended consequences as they set tax rates for nicotine products—especially in light of the strain businesses are already under due to the coronavirus pandemic. The current tax is $1.33 per pack. 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. Vaping products are electronic devices that heat liquid to create an aerosol inhaled, or “vaped,” by the user. The Governor has proposed a new state tax on e‑cigarettes with the stated goal of reducing youth use of e‑cigarettes. “The Effect of Prices and Taxes on Youth Cigarette and E‑Cigarette Use: Economic Substitutes or Complements?” Mimeo, Georgia State University. General Fund Could Help Address Revenue Uncertainty. As a result, staff The exact amount of tax on each item would be determined in two steps: (1) rounding up the total amount of nicotine to the next‑highest multiple of 20 milligrams, and (2) assessing a $1 tax per 20 milligrams, For example, the tax on an item containing 92 milligrams of nicotine—roughly the amount in a four‑pack of 3 percent nicotine JUUL pods—would be $5. Collections would be allocated to administration, enforcement, youth prevention, and health care workforce programs. As a result, the vendor needs to produce just two denominations of stamps, and taxpayers can comply with the tax by affixing just one stamp to each pack. Black market liquids and cigarettes have the problem of being extremely unsafe and cost governments billions in lost taxes. If the Legislature chooses to enact a nicotine‑based e‑cigarette tax, we recommend that it direct the administration to adjust the tax rate for inflation. Questions regarding the application process may be directed to the California Department of Justice at TobaccoGrantRFP@doj.ca.gov. The Legislature passed and Governor Newsom signed SB 793 by Senator Jerry Hill (D-San Mateo) on August 28 as Chapter 34. If the Legislature chooses to enact a new tax on e‑cigarettes, we recommend that it take an approach to revenue allocation that prioritizes flexibility. Explore our weekly European tax maps to see how countries rank on tax rates, structure, and more. We recommend that the Legislature take an approach to revenue allocation that prioritizes flexibility. The tax would take effect January 1, 2021 and is forecasted to raise $32 million in FY 2021. Instead, absent policy changes, they tend to decline over time. Although the revenue raised by the proposed tax is highly uncertain, the range of possible revenues would be small in the context of the General Fund. The administration, however, has not presented a compelling argument for this rate. (For example, this is the current method for allocating alcoholic beverage tax revenues.) Tax Likely Would Reduce E‑Cigarette Use Substantially. California levies an excise tax on non‑cigarette tobacco products. 1. New Tax on E‑Cigarettes. This administrative change could yield data that could help us refine our revenue estimates in the coming months. 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. 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