Research & Commentary: Arkansas E-Cigarette Tax Is Disservice to Tobacco Harm Reduction

Published February 20, 2019

Arkansas legislators are considering two bills that would implement a new tax on electronic cigarettes and vaping devices and increase the tax on combustible cigarettes. Unfortunately, draconian taxes on tobacco harm reduction products is a disservice to public health and negatively impacts small businesses. Instead, lawmakers should promote these products and not burden them with gratuitous taxes.

Currently, e-cigarettes and vaping devices are subject to Arkansas’ sales tax. Under tobacco taxes, “smoking tobacco, moist snuff, cigarettes and other tobacco are taxed” at 68 percent the manufacturer price. SB 347 would impose the same 68 percent tax on vaping devices to include “a vapor product or an e-liquid product.” The first $10 million in revenue generated by the tax will go to the University of Arkansas for Medical Science National Cancer Institute Designation Trust Fund. All other funds generated will be deposited in the Medical Sciences’ cash account.

HB 1442 would increase “the cost of doing business” by tobacco retailers from 7.5 percent to 9.5 percent “of the basic costs of cigarettes to the retailer.” The legislation will also impose a 10 cent-per-milliliter tax on e-liquids, which “may or may not contain nicotine.” The legislation does recognize “modified risk tobacco products,” or tobacco products that have been permitted by the U.S. Food and Drug Administration to be advertised with a reduced harm disclaimer, compared to combustible cigarettes. The legislation would reduce the rate of taxation, should any products be approved.

It is alarming that Arkansas lawmakers would threaten tobacco harm reduction when the state currently uses very little tobacco revenue towards cessation and prevention efforts. In 2018, Arkansas collected an estimated $282 million from tobacco settlements and taxes. However, the state only spent $8.9 million, or three percent of the tobacco funding received on tobacco prevention and education.

Research on the health effects of e-cigarette use consistently finds these products to be less harmful than combustible cigarettes, as well as an effective tool for smoking cessation. Public health organizations including Public Health England, the Royal College of Physicians, the National Academies of Sciences, Engineering, and Medicine, and the American Cancer Society find the use of electronic cigarettes and vaping devices less harmful than combustible cigarettes. Moreover, a 2019 study found e-cigarettes to be “twice as effective as nicotine replacement at helping smokers quit.”

State lawmakers should also understand that e-cigarettes can actually relieve state budget shortfalls by dramatically reducing health care costs. Analyzing a scenario where all Medicaid recipients who smoked switched from combustible cigarettes to e-cigarettes found states could have saved $48 billion in 2012. A smaller analysis examined one percent of the Medicaid population switching, finding that Medicaid savings would “be approximately $2.8 billion per 1 percent of enrollees” over the next 25 years.

More problematic is the economic implications with the legislation because of the negative effects of taxing vaping products. For example, when Pennsylvania passed a 40 percent wholesale tax on e-cigarettes in 2016, an estimated 120 vape shops closed. The Arkansas Vape Advocacy Alliance believes a 10 cent-per-milliliter tax on e-liquids will make “vapor products less affordable and less available.” The Tax Foundation finds that since vapor products “have much lower externalities than traditional cigarettes … excise taxes on the products should be lower or nonexistent.”

Vape shops are also a good way for entrepreneurs to create jobs and increase economic opportunities. It is estimated that vape shops “generate annual non-online sales of more than $300,000 per store” and average $26,000 in monthly sales. The industry is also expected to grow substantially over the next few years. In fact, the global electronic cigarette market “is estimated to reach $44,610.6 million by 2023.” Moreover, Arkansas is already losing revenue as the state bans internet sales of nicotine products. Online sales of e-cigarettes grew 41.3 percent from 2016 to 2017, from $345 million to $487.7 million.

Rather than imposing unwarranted taxes on tobacco harm reduction products, policymakers in Arkansas should encourage their use. E-cigarettes and vaping devices provide nicotine without the associated harms of combustible cigarettes and spur economic growth. Moreover, their use can actually save states money by reducing health care costs associated with combustible cigarettes.

The following documents provide more information about tobacco harm reduction.

Vaping, E-Cigarettes, and Public Policy Toward Alternatives to Smoking
For decades, lawmakers and regulators have used taxes, bans, and burdensome regulations as part of their attempt to reduce the negative health effects of smoking. Recently, some have sought to extend those policies to electronic cigarettes. This booklet from The Heartland Institute urges policymakers to re-think that tax-and-regulate strategy. Policymakers should be mindful of the extensive research that supports tobacco harm reduction and understand bans, excessive regulations, and high taxes on e-cigarettes often encourage smokers to continue using more-harmful traditional cigarette products.

Podcast Series: Voices of Vapers
In this weekly podcast series, State Government Relations Manager Lindsey Stroud talks with researchers, advocates, and policymakers about tobacco harm reduction and electronic cigarettes. The series provides important information about the thousands of entrepreneurs who have started small businesses thanks to THRs and the millions of adults that have used electronic cigarettes and vaping devices to quit smoking tobacco cigarettes.

Research & Commentary: Randomized Trial Finds E-Cigarettes Are a More Effective Smoking Cessation Tool than Nicotine Replacement Therapy–commentary-randomized-trial-finds-e-cigarettes-are-more-effective-smoking-cessation-tool-than-nicotine-replacement-therapy
In this Research & Commentary, Lindsey Stroud, a state government relations manager at The Heartland Institute, examines a study in The New England Journal of Medicine that shows e-cigarettes and vaping devices are twice as effective as nicotine replacement therapy (NRT) in helping smokers quit using tobacco cigarettes. Nearly 700 participants were studied during a 52-week period. Researchers found that 18 percent of e-cigarette users reported abstinence, compared to 9 percent of those using NRT. Stroud wrote that “these latest findings provide more valuable information on the public health role that e-cigarettes and vaping devices provide for the 38 million cigarette smokers in the United States,” and she implores policymakers to regulate these devices in a way that promotes, rather than prohibits, their use.

Research & Commentary: Vaping Taxes and Bans Hurt Smokers Trying to Quit–commentary-vaping-taxes-and-bans-hurt-smokers-trying-to-quit
In this Research & Commentary, Heartland Institute Senior Policy Analyst Matthew Glans and State Government Relations Manager Lindsey Stroud examine vaping bans and taxes and consider how such measures block or limit what is for many smokers an effective method for halting the use of tobacco cigarettes.

Research & Commentary: Public Health Officials Urge Use of Electronic Nicotine Delivery Systems
In this Research & Commentary, Heartland Institute State Government Relations Manager Lindsey Stroud notes the importance of NHS Health Scotland’s joint statement encouraging the use of electronic nicotine delivery systems (ENDS) as an alternative to tobacco products. NHS Health Scotland, Public Health England, and other groups have found ENDS are 95 percent less harmful than tobacco cigarettes.

Research & Commentary: Qualitative Study on E-cigarettes Shows More Evidence of Tobacco Harm Reduction
In this Research & Commentary, Heartland Institute State Government Relations Manager Lindsey Stroud examines a study, published in The International Journal of Environmental Research and Public Health in June 2016, that provides additional evidence showing e-cigarettes and vaporized nicotine products (VNPs) are an effective tobacco harm-reduction tool.

Nicotine Without Smoke: Tobacco Harm Reduction
This report provides an update on the use of tobacco harm reduction strategies related to non-tobacco nicotine products, particularly e-cigarettes. The authors conclude for all the potential risks involved, harm reduction has significant potential to prevent death and disability caused by tobacco use and to hasten the nation’s progress toward a tobacco-free society.

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. For further information on this and other topics, visit the Budget & Tax News website, The Heartland Institute’s website, our Consumer Freedom Lounge, and PolicyBot, Heartland’s free online research database.

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Arianna Wilkerson, a state government relations manager at Heartland, at [email protected] or 312/377-4000.