The vaping industry has seen rapid growth in recent decades, offering a viable alternative to traditional cigarettes for those seeking to quit smoking. However, the tax structures imposed on vaping products vary significantly across the United States, potentially influencing consumer behavior and public health outcomes.
As of June 2024, 32 states and the District of Columbia have imposed an excise tax on vaping products. These taxes can be based on the manufacturer, wholesale, or retail price (ad valorem), or on the product volume or number of cartridges (ad quantum). Some states even apply a bifurcated system with different rates for open and closed systems.
Minnesota imposes the highest wholesale tax of 95 percent, closely followed by Vermont at 92 percent. On the other end of the spectrum, Georgia and New Hampshire levy the lowest burden at the wholesale level, at seven and eight percent respectively. Retail-level taxes can range from as high as 60 percent in Maryland for closed systems to as low as 10 percent in Nebraska for containers greater than 3 mL.
Per milliliter taxes are highest in Connecticut at $0.40 per mL for closed systems, followed by New Hampshire at $0.30 for closed systems and Louisiana at $0.15 per milliliter on all systems. Kentucky and New Mexico levy a tax per cartridge of $1.50 and $0.50, respectively.
While vaping is not without its health risks, it is widely accepted as a less harmful alternative to traditional cigarettes. The English Ministry for Health, through Public Health England, has concluded that vaping is 95 percent less harmful than cigarettes. This disparity in health risks underscores the importance of incorporating harm reduction into the design of excise taxes on vapor products.
High excise taxes on less harmful alternatives like vaping products can inadvertently push vapers back to smoking, negatively impacting public health. For instance, a recent study found that a 95 percent excise tax on vapor products in Minnesota deterred 32,400 smokers from quitting cigarettes.
Therefore, it is crucial that tax policy on nicotine-containing products considers the potential for harm reduction. Lower tax rates on vaping products can encourage smokers to switch from more harmful combustibles, contributing to improved public health outcomes.
For a more detailed discussion on the ideal design for vapor taxes and other alternative nicotine products, see our recent report here.