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September 20, 2018

In July 2018, New Jersey approved a measure imposing a tax on “liquid nicotine at a rate of $0.10 per fluid milliliter.” The measure included a one-time floor tax on current inventory of liquid nicotine that is due by October 1, 2018.


In September, Assemblyman John Burzichelli (D-Gloucester) introduced legislation that would replace the e-liquid tax with a “3.5 percent tax on the sale of all products containing nicotine” and repeal the floor tax. If enacted, Burzichelli’s proposal would promote public health and protect small businesses by reducing their overall tax burden.


Liquid nicotine is a vital component of electronic cigarettes, which are one of many types of tobacco harm reduction (THR) products. Taxes on THR products are counterproductive and offset some of the public gains these tools provide. Electronic cigarettes and vaping devices can effectively deliver nicotine without the harmful constituents associated with combustible tobacco smoke, and many public health groups have acknowledged the reduced risk associated with their use.  


In 2018, the National Academies of Sciences, Engineering, and Medicine found switching from combustible tobacco cigarettes to e-cigarettes “results in reduced short-term adverse health outcomes in several organ systems.” The same year, the American Cancer Society acknowledged “the exclusive use of e-cigarettes is preferable to continuing to smoke combustible cigarettes.”

This is consistent with earlier findings. For instance, in 2016, the Royal College of Physicians found e-cigarette use “unlikely to exceed 5% of the harm from smoking tobacco,” concluding that it is “in the interest of public health … to promote the use of e-cigarettes.” In a 2016 briefing, Cancer Research UK noted current evidence indicates e-cigarettes are less hazardous than tobacco cigarettes and that “it is important that regulation does not stifle [their] development.”


The use of electronic cigarettes in place of combustible cigarettes can also positively impact state budgets. J. Scott Moody, chief executive officer and chief economist at State Budget Solutions, analyzed the impact of THR products on health care costs. Moody estimated Medicaid savings could have amount to $48 billion in 2012 if e-cigarettes had been substituted by current Medicaid smokers.


A 2017 Policy Study by the R Street Institute analyzed a smaller number of Medicaid recipients switching from combustible cigarettes to e-cigarettes. Associate Fellow Richard B. Belzer used a sample size of “1% of smokers [within] demographic groups permanently” switching. Using this analysis, Belzer estimates Medicaid savings “will be approximately $2.8 billion per 1 percent of enrollees” over the next 25 years.


Notably, taxes on vaping products have not been successful in other states. For example, in 2016, Pennsylvania imposed a vaping tax on “40% of the purchase price of the wholesaler or manufacturer.” In 2017, a legislator said the 40 percent tax “has already resulted in the closure of more than 100 small businesses and the loss of several hundred jobs in the industry.”


Furthermore, research indicates these businesses “generate an annual non-online sales of more than $300,000 per store,” a monthly average of about $26,000.


As has happened elsewhere, imposing higher taxes in the Garden State on THR products will force stores to permanently close. Consequently, consumers of THR products will shop elsewhere, including online and out of state, for their vaping needs.


Although eliminating the tax on vaping products would be ideal, the proposed tax change would help soften the burden New Jersey vape shop owners would face come October 1 if the current tax goes into effect. Rather than imposing draconian taxes on devices that have helped millions quit smoking combustible cigarettes, New Jersey lawmakers should support a tax regime that does not undermine the sale of these products.

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute or Tobacco Harm Reduction 101.

Centers for Disease Control and Prevention Link Majority of Vaping-Related Hospitalizations to THC: Welcome
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