14/24/2019

TAXING E-CIGARETTES: APPLYING APROVEN PUBLIC HEALTH TOOL TOEMERGING PRODUCTS

THE PUBLIC HEALTH LAW CENTER

4/24/2019 2

LEGAL TECHNICAL ASSISTANCE

4/24/2019 3

Legal Research

Policy Development, Implementation, Defense

Publications

Trainings

Direct Representation

Lobby

12/17/2018 4

Image credit: Sam Bradd https://drawingchange.com/gathering-wisdom-visuals-for-a-healthy-future/

SPEAKERS

4/24/2019 5

• Anne BoonnDirector, ResearchCampaign for Tobacco-Free Kids

• Mark MeaneyLead Senior Staff Attorney for Technical AssistancePublic Health Law Center

• Molly MoilanenVice-President, ClearWay Minnesota

• Cathy CallowayDirector, State and Local CampaignsAmerican Cancer Society Cancer Action Network

TobaccoFreeKids.org >

Why TaxE-Cigarettes?Taxing E-Cigarettes: Applying a Proven Public Health Tool to Emerging Tobacco Products

Ann Boonn, Director, Research

TobaccoFreeKids.org >

TobaccoFreeKids.org >

“E-cigarettes have become an almost ubiquitous – and dangerous –trend among youth that we believe has reached epidemic proportions”

Scott Gottlieb, Former FDA CommissionerSeptember 18, 2018

TobaccoFreeKids.org >

…Youth e-cigarette use has skyrocketed so much so today that I am officially declaring e-cigarette use among youth an epidemic in the United States.…We’re in the midst of a historic and unprecedented increase in youth use of any substance….Today we must protect our nation’s young people from a lifetime of nicotine addiction and associated problems by immediately addressing youth e-cigarette use.

Jerome Adams, U.S. Surgeon GeneralDecember 18, 2018

TobaccoFreeKids.org >

Youth E-Cigarette Use & OtherTobacco Use

• Youth e-cigarette use is associated with initiation of combustible tobacco use [Source: U.S. Surgeon General and NASEM]

• The increase in e-cigarette use has driven a 38 percent increase in use of any tobacco product among high school students (from 19.6 percent in 2017 to 27.1 percent in 2018). [Source: 2018 NYTS]

• E-cigarette availability is increasing overall youth tobacco use, including among low-risk youth

• E-cigarette use is associated with trying cigarettes even for low-risk youth

TobaccoFreeKids.org >

Price Promotions

July 2018, Pittsburgh, PA. Courtesy of Counter Tobacco.

October 2018, Elmira, NY. Courtesy of Counter Tobacco.

March 18, 2019, https://www.instagram.com/p/BvJ2nLLjxKD/

TobaccoFreeKids.org >

E-Cigarette Prices and Youth

• “higher e-cigarette disposable prices reduce e-cigarette use among adolescents.”

• “policies that raise retail e-cigarette prices, such as taxes, have the potential to reduce adolescents’ e-cigarette initiation and consumption.”

TobaccoFreeKids.org >

https://e-cigarettes.surgeongeneral.gov/default.htm

TobaccoFreeKids.org >

Evolution of E-Cigarettes

TobaccoFreeKids.org >

Federal Regulation of E-Cigarettes

• FDA’s Final “Deeming Rule” issued May 5, 2016, effective August 8, 2016.

• What does the deeming rule cover?• Some minimum age requirements (in person only, not online)• Product registration and ingredient reporting• Warning label requirements (delayed until August 2018)• Product review applications (delayed until August 2022*)

• What doesn’t it cover?• Child-proof packaging (Consumer Product Safety Commission)• Flavors*• Self-service• Marketing restrictions (similar to cigarettes): sponsorships, branded merchandise

• Federal Excise Tax on E-Cigarettes* May change for some products with FDA’s proposed draft guidelines issued March 13, 2019.

TobaccoFreeKids.org >

The FDA Law Doesn’t Change Each State’s Right To…

• Apply tobacco taxes to e-cigarettes• Implement & enforce smoke-free laws

• Expand to include e-cigarettes

• Take action to restrict the sale & distribution of e-cigarettes

• Sales to youth (minimum age)• Flavors• Self-service displays/placement

• Pass licensing requirements

174/24/2019

ANSWERING THE FUNDAMENTAL QUESTIONS

BASELINE INFORMATIONMOVING BEYOND THE “WHY”

• Which products should be taxed?

• What is the appropriate level of taxation?

• How should the tax be structured?

• Consider unique enforcement and implementation challenges.

• Are there legal concerns?

4/24/2019 18

4/24/2019 19

WHAT IS AN E-CIGARETTE?

WHICH PRODUCTS SHOULD BE TAXED?

4/24/2019 20

• Clear definition of what is being taxed is essential.

• Include device, but exclude non-functioning parts.

• Define and tax as “tobacco products”?

KEY DEFINITIONS

4/24/2019 21

WHAT IS THE APPROPRIATE LEVEL OF TAXATION?

• On parity with cigarettes?• Lower rate based on risk? If so, how is

that determined?• Same as other tobacco products?

4/24/2019 22

HOW SHOULD TAX BE STRUCTURED?

• Ad valorem• By volume?

• 5 cents/milliliter = 3.5 cents per JUUL pod

• By concentration?• Where is it collected?

4/24/2019 23

IMPLEMENTATION AND ENFORCEMENT

Key issues:

• Effective licensing

• Burden of proof

• Laboratory for testing

• Internet sales

• Evaluating effectiveness

4/24/201924

LITIGATIONALWAYS LITIGATION

East Coast Vapor, LLC v. Pennsylvania Dept. of Revenue.

4/24/201925

26

What states are taxing e-cigarettes? How are they doing it?

28

States with excise or special taxes~NOT sales tax ~

State Effective Date

1. California 4/1/20172. Delaware 1/1/20183. Dist of Columbia 10/1/20154. Kansas 7/1/20175. Louisiana 7/1/20156. Minnesota 8/1/20107. New Jersey 9/29/20188. North Carolina 6/1/20159. Pennsylvania 7/13/201610. West Virginia 7/1/2016

Generally Two Approaches

1. Ad Valorem (percentage of price)

Generally preferred by public health because it results in a higher tax

2. Set amount per unit (ie ml.) of liquid nicotine

Generally preferred by industry because it results in a lower tax

30

1. Ad ValoremPercentage of Price

• Minnesota– 95% of wholesale price (same as OTPs)

• Pennsylvania– 40% of purchase price charged to the retailer.

• California– 62.78% of wholesale price (variable)

• District of Columbia– 96% of wholesale price (variable)

31

2. Set amount per fluid milliliter of consumable material (liquid nicotine)

10 cents per fluid mlvNew Jersey

7.5 cents per fluid mlvWest Virginia

5 cents per fluid mlvDelawarevKansasvLouisianavNorth Carolina

Chicago$1.20 per container / $1.55 per ml

32

More about Minnesota’s experience

33

2010 Political Goal:

• Spotlight on the evolving tobacco industry

• Talk about cheap prices • Show new products• Build toward a tobacco

tax increase• Build relationships with

new lawmakers

33

34

2010 Policy Goal:

• Update definitions to capture new products that were evading tobacco tax laws, the unfair cigarette sales act, promotional distribution, and youth access laws.

35

36

ChallengesExplosion of nontraditional distribution channels

What is the taxable transaction?Manufacture = Distributor = Retailer

36

37

Challenges

1. Lack of action by FDA2. Compliance capacity 3. Unable to specify how much tax revenue is generated or trends in consumption4. What is the taxable unit?5. Claims of “non-tobacco” nicotine 6. Lawsuits

37

38

New Proposals fromMinnesota Dept of Revenue

1. MN DOR asking for a clearer definition of “vapor products” for tax purposesüAdvocates pushed backüAdded “aerosol” in addition to “vapor” üSwap “vapor product” for “nicotine solution”

2. Clarifying that “nicotine” does not need to be derived from tobacco. It can be natural or synthetic.3. Requesting more resources for tobacco tax compliance and enforcement.

38

What are we seeing in 2019?

Tobacco Industry Diversion Tactics

• Introduce other issuesT21Online/delivery salesAdd e-cigarettes to weak smoke-free laws

• Introduce issues already covered by other laws or policiesChildproof packagingSmoke-free schools

• Create a task force or study committee• Lower taxes on modified risk tobacco products• Try to sweeten the pot with pathetically low increases in funding for cancer

research or tobacco control

40

Definitions Impact Future Action

• Liquid nicotine• E-liquid• Consumable material• Liquid nicotine container• Closed system cartridges

41

Nickel & Dime Approach

Sec. 6. (a) The electronic cigarette tax is imposed on the distribution of consumable material in Indiana at the rate of four cents ($0.04) per fluid milliliter of consumable material.

42

Low Ad Valorem Taxes

NM – “For the manufacture or acquisition of e-liquid in New Mexico to be distributed in the ordinary course of business and for the consumption of e-liquid in New Mexico, there is imposed an excise tax at a rate equal to 12 and 1/2 % of the product value of the e-liquid.”

WA – “There is levied and collected a vapor products excise tax equal to 37% of the selling price on each retail sale in this state of any vapor product on which the retail sales tax imposed.”

43

Modified Risk Tobacco Products

• FDA has not approved any modified risk tobacco product marketing orders to date.

• Any action at the state level to regulate modified risk tobacco products differently from cigarettes and other tobacco products is premature.

• We don’t know what these products are or what they will be. We don’t know what their price will be or how they will be packaged or marketed. Without this information it is too soon to decide how and if they should be regulated at the state level.

44

Modified risk tobacco products — Reduced rate of taxation.Notwithstanding any other provision of the law to the contrary, a tax imposed under this chapter shall be reduced by the following amounts:

(1) Fifty percent (50%) for a product for which a modified risk tobacco product order has been issued by the United States Secretary of Health and Human Services under 21 U.S.C. § 387k(g)(1), as it existed on January 1, 2019; and

(2) Twenty-five percent (25%) for a product for which a modified risk tobacco product order has been issued by the United States Secretary of Health and Human Services under 21 U.S.C. § 387k(g)(2), as it existed on January 1, 2019.

45

“Heated tobacco product" means a product containing tobacco that produces an inhalable aerosol (i) by heating the tobacco by means of an electronic device without combustion of the tobacco or (ii) by heat generated from a combustion source that only or primarily heats rather than burns the tobacco.

"Liquid nicotine" means a liquid or other substance containing nicotine in any concentration that is sold, marketed, or intended for use in a nicotine vapor product.

46

Study Committee

“…continue studying options for the modernization of § 58.1-1001(A), Code of Virginia, to reflect advances in science and technology in the area of tobacco harm reduction, and the role innovative non-combustible tobacco products can play in reducing harm, including products that produce vapor or aerosol from heating tobacco or liquid nicotine.”

47

Next Steps

• Look everywhere for problematic terms and definitions

• Prioritize evidence-based tobacco control policies• Prepare lawmakers for industry tactics• Engage in the interim study process• Share your stories. We learn from each other.• We are here to help!

48

QUESTION & ANSWER

4/24/2019 49

To submit a question: click the black Q&A button in the top left of the Zoom window.

CONTACT US

4/24/2019 50

651.290.7506

publichealthlawcenter@mitchellhamline.edu

www.publichealthlawcenter.org

@phealthlawctr

facebook.com/publichealthlawcenter