51
Taxing E-Cigarettes – Options & Potential Impact Frank J. Chaloupka, University of Illinois at Chicago Council of State Governments Policy Workshop December 12, 2015, Nashville TN
Taxing E-Cigarettes – Options & Potential Impact
Frank J. Chaloupka, University of Illinois at Chicago
Council of State Governments Policy Workshop
December 12, 2015, Nashville TN
Overview
• Brief introduction to e-cigarettes and other
electronic nicotine delivery systems
• Trends in e-cigarette use
• Public health concerns about ENDS use
• Brief review of cigarette taxation
• Evidence on prices and ENDS use
• Current state and local approaches to taxing
ENDS
• Challenges of implementing ENDS taxes
@tobacconomics
@tobacconomics
Funding & Collaborators Acknowledgement
• National Cancer Institute of the National Institutes of
Health (Grant No. 1U01CA154248). Principal
Investigator: Dr. Frank Chaloupka. “Monitoring and
Assessing the Impact of Tax and Price Policies on U.S.
Tobacco Use.”
• Centers for Disease Control and Prevention –
various grants and contracts
• Many Collaborators – Jidong Huang, Sherry Emery,
John Tauras, Jamie Chriqui, Camille Gourdet, Hilary
DeLong, and more…..
Brief Introduction to E-Cigarettes
Types of E-Cigarettes
Three main categories:
1. Mini
(Cig-a–Like)
2. Mid-Size
(e-go)
3. APVs, MODs or
Open Tank
Photo Sources:
http://mediad.publicbroadcasting.net/p/michigan/files/201406/electronic-cigarette.jpg
http://www.agistaterre.com/photo/pl1511180-lcd_display_150mm_ego_ce4_electronic_cigarette_kit_with_clearomizer.jpg
http://cdn.shopify.com/s/files/1/0267/5951/products/spire_1_1024x1024.jpg?v=1386635557
http://assets.hightimes.com/snoop-gpen-1.JPG
6
Components
• Basic Components:
• Battery
• Heating Mechanism – Atomizer
• Container – This pieces houses the atomizer and e-
juice, or e-liquid. Depending on design it can be
called a cartomizer, clearomizer, or tank.
• E-juice – Liquid used to crate the vapor, contains a
mixture of propylene glycol, vegetable glycerin,
flavorings and (usually) nicotine.
www.tobacconomics.org
Types of E-Cigarettes: Disposables
7
Picture Source: http://www.cigbuyer.com/wp-content/uploads/2013/09/disposable-e-cigs.jpg (Top-Left)
http://ecigarettereviewed.com/wp-content/uploads/2013/07/Logic-Disposable-E-Cig-Battery.jpg (Logic)
http://www.ecigsmokers.net/wp-content/uploads/onejoy_recycle.png (NJOY)
http://www.afws.net/wp-content/uploads/2014/01/Fin-Disposable-E-Cig.jpg (Fin)
http://elektrousa.com/wp-content/uploads/2012/12/img-flavor-dis-grape.jpg (Elektrousa)
https://www.completevape.com/content/images/thumbs/0003115_aviator-disposable-e-cigarette.jpeg (Aviator)
www.tobacconomics.org
Type of E-Cigarettes: Starter Kits (Reusable)
A started Kit usually contains:
• Battery – 1 or 2, though some
can contain up to 10.
Customization can allow for
various lengths and colors.
• Cartridge – at least 1, usually
regular flavor, though some
manufacturers allow strength
and flavor customization.
• Battery Charger – Most kits
contain a USB charger, and a
Wall charger. Some kits might
contain an extra USB, Case,
and or Car charger.
Photo Source: http://www.dicigs.com/express-starter-kit/ (Victory)
http://www.electriccigarettewdf.com/images/16%20Electric%20Cigarette%20WDF.jpg (7’S)
http://d1l554c703zm4j.cloudfront.net/wp-content/uploads/2014/04/blu-jenny-pack-variety-violator.png (Blu)
Sources: http://www.smooke.com/img/ego/egoC_header.png (Smoke)
http://www.coudim.cz/97-205-large/clear-echomizer-ce4-clearomizer-ce4.jpg (clear-echomizer)
http://2.bp.blogspot.com/-MC1hGuoNxlo/UaqJFJsW2vI/AAAAAAAAAYM/K0j9S90pRDA/s1600/FT-eGo-W-atomizer.jpg (VJ)
http://www.4aceswholesale.com/cart/images/cache/data/E-Cig/Blue%20eGo/eGo%20Blue%20E-Liquid%20Vape%20
With%20Lanyard%205-500x500.JPG (Blue case)
http://media-cache-ec0.pinimg.com/236x/5a/e2/a4/5ae2a4a40a61bf15d3a6062c86ceb56d.jpg (Bottom-Right)
Types of E-Vapor Products: E-GOs
Types of E-Vapor Products: MODs & APV’s
Sources: http://ecigarettereviewed.com/wp-content/uploads/2013/07/coke-can-e-cig-mod.jpg (Coke)
http://realelectriccigarettereviews.com/wp-content/uploads/2013/07/VAMO-V3-R2-D2-J-Wrap.jpg (R2D2)
http://www.tronicvape.com/wp-content/uploads/2014/04/mug-vape-mod.jpg?24de07 (Mug Vape)
http://www.vaperev.com/wp-content/uploads/2013/06/2013-05-243862-copy.jpg (Vaperev)
http://ecigarettereviewed.com/wp-content/uploads/2013/07/steampunk-mod.jpg (Steampunk)
11
Additional Products
• Refills
• E-Juice
• E-cigars
• E-hookahs
Sources:
Refill: http://www.cocktailnerd.com/wp-content/uploads/2011/09/pina_colada_nat_341x256.jpg
Cigar: http://store.affordablee-cigs.com/content/210589/logic_cigar_2.jpg
E-Liquid: http://blog.my7s.com/wp-content/uploads/2013/03/blog-image2-620x340.jpg
E-Hookah: http://cdn2.bigcommerce.com/n-pktq5q/8bpd5en/products/1442/images/3387/e_hookah2__17388.
1405421919.1280.1280.jpg?c=2
Estimated Size of the Vapor Market
Vapor Market Size $3.5 B
E-Cigarettes $1.5B
Tracked Channels (Nielsen)
$700M
Non-Tracked Channels
$800M
Online
$400M
Other
$400M
Vapor/Tanks/Mods
$2.0B
Online
$400M Vape Shops $1.2B
C-store, Food, Drug, Mass Retail
Channels
$400M
Source: Presentation: Development of Premium E-Flavors and Market Analysis
Note: Other Non-Tracked channels include tobacco-only outlets and other e-cig retail locations
@tobacconomics
E-Cigarette Use
Ever Use of E-Cigarettes Among Adults 2010-2013
8.50%
9.8%
21.2%
31.4%
36.5%
2.5%
7.4%
5.7%
9.6%
1.3%
1.3% 2.3%
1.2% 0%
5%
10%
15%
20%
25%
30%
35%
40%
2010 2011 2012 2013
Overall Current Smokers Former Smokers Never Smokers
Source: King et al., 2015 @tobacconomics
Current Use of E-Cigarettes by Adults 2010-2013
1.3%
1.9%
0.2% 0.0%
4.9%
9.4%
1.0% 1.3%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
2010/11 2012/13
Overall Never Smokers Current Smokers Former Smokers
Source: King et al., 2015 www.tobacconomics.org
Youth E-Cigarette and Tobacco Use High School Students, 2011-2014
Source: CDC., 2015 @tobacconomics
Youth E-Cigarette and Tobacco Use Middle School Students, 2011-2014
Source: CDC., 2015 www.tobacconomics.org
Public Health Impact?
• Concerns:
– Gateway to combustible tobacco products for youth?
– Dual use, not cessation, among adult smokers?
– Impact of ‘second-hand vaping’?
– Nicotine poisoning
– Use for vaping other substances (particularlyTHC)
– Lack of evidence on long term health consequences
of use
– Impact of nicotine on the developing brain
– Renormalization of smoking
www.tobacconomics.org
Source: Public Health England, 2015
“An expert
review of the
latest evidence
concludes that e-
cigarettes are
around 95%
safer than
smoked tobacco
and they can
help smokers to
quit.”
20
Source: California Department of Public Health, 2015
Cigarette Demand
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
13500
15500
17500
19500
21500
23500
25500
27500
29500
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Price p
er
Pack (
1/1
4 D
olla
rs)
Sale
s (
mill
ion p
acks)
Year
Cigarette Prices and Cigarette Sales United States, Inflation Adjusted, 1970-2012
Sales Price
Sources: Tax Burden on Tobacco, BLS, and author’s calculations
@tobacconomics
Source: Tax Burden on Tobacco, 2013, National Health Interview Survey, and author’s calculations
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
17
21
25
29
33
37
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Price p
er
Pack (
1/1
4 D
olla
rs)
Pre
vale
nce
Year
Cigarette Price & Adult Smoking Prevalence Inflation Adjusted, United States, 1970-2013
Prevalence Price
www.tobacconomics.org
0
50,000
100,000
150,000
200,000
2004 2005 2005 2005 2006 2006 2006 2007 2007 2007 2008 2008 2008 2009 2009 2009
Monthly Quit Line Calls, United States 11/04-11/09
4/1/09 Federal Tax Increase
1/1/08 WI Tax Increase
@tobacconomics
Sources: Tax Burden on Tobacco, BLS, MTF, and author’s calculations
16
21
26
31
36
$2.75
$3.50
$4.25
$5.00
$5.75
$6.50
1991 1994 1997 2000 2003 2006 2009 2012
Sm
okin
g P
revale
nce,
12th
Gra
de S
tudents
Price p
er
Pack (
1/1
4 D
olla
rs)
Cigarette Price & Youth Smoking Prevalence High School Seniors, United States, 1991-2013
Cigarette Price 12th grade prevalence
www.tobacconomics.org
26
AZ
WY
OR
ID
MT
UT
NV
WA
CA
TX
AR OK
ND
LA
KS
IA NE
SD
CO
NM
MO
MN
TN
AL
KY
OH
MS
MI
IN
GA
FL
PA
ME
NY
WV VA
NC
SC
VT
D.C.
NJ
MD
DE
NH MA
IL
WI
AK
50-99 cents per pack
$1.00-$1.49 per pack
$1.50-$1.99 per pack
$2.00-$2.99 per pack
<50 cents per pack
Chicago$
$6.16
NYC
$5.85
CT
RI
≥ $3.00 per pack
Anchorage
$3.45
HI
State Cigarette Excise Tax Rates – February 2015
@tobacconomics
E-Cigarette Demand
Disposable ENDS Sales Volume and Price, US 2010 - 2014
-
2,000
4,000
6,000
8,000
10,000
$8.00
$9.00
$10.00
$11.00
$12.00
$13.00
$14.00
$15.00
$16.00
$17.00
Q12010
Q22010
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Q32014
Q42014
Sale
s V
olu
me (
Th
ou
san
d o
f P
ieces)
Sale
s P
rices (
Real
2014 Q
4 D
ollars
)
Real Price Volume
@tobacconomics
Reusable ENDS Sale Volume and Price, US 2010 - 2014
-
500
1,000
1,500
2,000
2,500
3,000
$-
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
Q12010
Q22010
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Q32014
Q42014
Sale
s V
olu
me
(T
ho
us
an
ds o
f P
ieces)
Sale
s P
rice (
Real
2014 Q
4 D
ollars
)
Real Price Volume
www.tobacconomics.org
E-Cigarette Prices & Sales
• Huang, Tauras and Chaloupka, Tobacco Control, 2014
• Overall sales of e-cigarettes are sensitive to price changes
• A 10% increase in price reduces sales of disposable e-
cigarettes by approximately 12%, and by about 19% for
reusable e-cigarettes.
• Sales of disposable e-cigarettes were higher in markets with
stronger SFA policies.
• No consistent statistical significant relationship between
cigarette prices and e-cigarette sales.
• Increasing reusable e-cigarette price will lead to an increase in
disposable e-cigarette sales.
@tobacconomics
E-Cigarette Prices & Sales
• Stoklosa, Drope & Chaloupka (under review)
• 2011-2014 monthly data on e-cigarette sales in six
EU countries (Estonia, Ireland, Latvia, Lithuania,
Sweden, and UK)
• 10% increase in price reduces e-cigarette sales by
8-9%
• E-cigarette sales generally positively associated
with cigarette prices, but mostly not statistically
significant
www.tobacconomics.org
Price and Adult E-cigarette Use
Huang, et al., (under review)
– Web-panel of adults and market-level price data
– Higher disposable e-cigarette prices correlated with
lower odds of ever use
• 10% increase in price reduces likelihood of ever use by 8-10%
– Neither rechargeable e-cigarette price nor
combustible cigarette price was found associated
with e-cigarette ever use
– No significant interactions were discovered between
e-cigarette or cigarette price and e-cigarette current
use.
@tobacconomics
Impact of Price on E-cigarette Use
Pesko, et al. (in progress)
– 2014 Monitoring the Future data on youth
use of e-cigarettes
– Nielsen scanner price data
– Preliminary estimates suggest very large
effects of price on youth
– Next steps: add 2015 data
www.tobacconomics.org
ENDS Taxation
Rationale for ENDS Taxation
• Improve Public Health
• Encourage switching from combusted to
potentially ‘less harmful’ products
• Prevent youth initiation
• Raise Revenue
• New source of revenues
• Replacement source for declining tobacco tax
revenues
@tobacconomics
State and Local ENDS Taxes
• Minnesota was first state to implement a tax on
e-cigarettes in 2012
• North Carolina, Louisiana and DC taxes recently
implemented
• Kansas tax beginning July 2016
• Many (most?) other states have discussed or are
considering
• Local taxes in Petersburg and Juneau Alaska
• Chicago tax recently adopted
www.tobacconomics.org
Minnesota ENDS Tax
• Minnesota taxes e-cigarettes at 95% of the
wholesale price by determining that they fall in the
definition of a tobacco product
• Based on Department of Revenue decision that e-
cigarettes fit the state’s definition of a tobacco
product
• Public health community not actively involved in
the decision
@tobacconomics
Minnesota Language – Department of Revenue
• 2012 Minnesota Dept. of Revenue memo:
• An electronic cigarette or e-cigarette is a device that
simulates smoking tobacco. In Minnesota, e-cigarettes and
e-juice which contain nicotine derived from tobacco meet
the definition of a tobacco product found in (Minnesota
Statutes, section 297F.01, subdivision 19).
• E-Cigarettes are taxable.
• E-cigarettes and e-juice are considered tobacco products
and are subject to the Tobacco Tax, which is currently 95%
of the wholesale cost of any product containing or derived
from tobacco.
– Source: http://www.revenue.state.mn.us/businesses/tobacco/Pages/e-Cig.aspx
www.tobacconomics.org
Minnesota ENDS Tax
• Minnesota tax based on value of the e-juice
• But if sold as part of a package (e.g. reusable e-cigarettes or
starter kits), tax applied to entire package
• Taxes collected from licensed ‘distributors’
• Retailers, vape shops can get list of licensed distributors
from state tax authorities
• Active enforcement
• Compliance checks of retailers, vape shops to determine if
taxes have been paid
• Untaxed products subject to seizure
• Similar measure recently adopted in DC
@tobacconomics
Importance of Definitions
• State statutory definitions of e-cigarettes can be
categorized as*:
• Inclusive: e-cigarettes are included in the statutory
definitions of tobacco products (9 states)
• Neutral: e-cigarettes are defined separately from
tobacco products in statute, but not exempted from
future inclusion in the definition of tobacco products or
further application of tobacco control-related statutes
(14 states)
• Exempting: e-cigarettes are explicitly exempt from
being defined or treated as a tobacco product by
statute (6 states) * Note these reflect definitions as of early 2014.
www.tobacconomics.org
North Carolina ENDS Tax
• Tax on vapor products adopted May 2014; became
effective July 1, 2015
• RJR proposal; no public health input
• Five-cents per milliliter of ‘consumable product’
• “any nicotine liquid solution or other material that is depleted as vapor
product is used”
• Taxes collected from licensed distributors
• Retailers, vape shops can be licensed as distributors
• Similar to approach used for OTP tax
• Relatively passive enforcement
• Efforts to increase awareness of tax among distributors, retailers
• Similar measure recently adopted in Louisiana
@tobacconomics
Kansas ENDS Tax
• Tax adopted June 2015; effective July 1, 2016
• Part of a larger tobacco tax measure that increased
cigarette and other tobacco product taxes effective July
1, 2015
• Twenty cents per milliliter of ‘consumable
product’
• Implementation details unclear
www.tobacconomics.org
Chicago ENDS Tax
• Combined cigarette taxes in Chicago are
highest in the U.S.
• $7.17 per pack; NYC second at $6.85
• No taxes on other tobacco products
• $0.80 per container of e-juice + $0.55 per ml
• Relatively larger effect on cost of using disposable and
rechargeable products
• Not as great as originally proposed $1.25/$0.25 tax
• Implementation details unclear
@tobacconomics
Implementing ENDS Taxes
Mechanics of ENDS Taxes
• Ad Valorem vs. Specific Excise Tax
• Diversity and rapid evolution of products suggests ad
valorem tax would be easier to administer
• Disadvantages of Ad Valorem Tax:
• Valuation problems
• Tax depends on industry pricing strategies
• Larger price gaps between high, low priced products
• High tax on devices could discourage use
• Advantages of Ad Valorem Tax:
• Is not eroded by inflation
www.tobacconomics.org
Mechanics of ENDS Taxes
• What to tax?
• All products/components vs. e-juice?
• Only products that contain nicotine?
• All nicotine vs. nicotine derived from tobacco?
• Where to collect tax?
• Distributor vs. retailer?
• Need for licensing
@tobacconomics
Level of ENDS Taxes
• Low tax relative to cigarette, OTP taxes
• Little impact in reducing use, uptake
• Encourages dual use
• Maximize incentives to switch from combustibles to ENDS
• Minimal new revenue
• ENDS tax equivalent to cigarette tax
• Significant impact on use, uptake
• Little incentive to switch from combustibles to ENDS
• Modest new revenue
www.tobacconomics.org
Level of ENDS Taxes
• Significant tax on ENDS coupled with increased
taxes on cigarettes and other combustible
tobacco products
• Maintain or increase relative price of combustibles
• Maximize switching while discouraging initiation and
dual use
• Generates significant new revenues
Summary
Summary
• Rapidly rising ENDS use, particularly among
kids
• Unclear impact on public health
• Growing evidence that ENDS use is responsive
to price
• Taxing ENDS products to prevent initiation among
youth and never smokers
• Combine with increased taxes on combustibles to
promote cessation, switching
@tobacconomics
For more information:
www.tobacconomics.org
@tobacconomics
