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Federal Bills Would Substantially Increase Tobacco Taxes and Allow New Taxes on Electronic Cigarettes

Two bills recently introduced in Congress would substantially increase federal excise taxes on tobacco products, and probably allow the imposition of new federal excise taxes on e-cigarettes.

Senate Bill 39, introduced by Tom Harkin on January 22nd, would allow the imposition of federal excise taxes on e-cigarettes if the Food & Drug Administration deems e-cigarettes to be tobacco products under the Tobacco Control Act. The Treasury Department would be responsible for establishing rules taxing e-cigarettes at an equivalent rate to cigarettes.

Senate Bill 39 also would do the following:

  • Increase the tax rate for cigarettes and small cigars by $1.00 per pack.
  • Double the tax rate for roll-your-own tobacco, and impose an equivalent tax on pipe tobacco (which is currently a small fraction of the rate for RYO).
  • Double the tax rate for chewing tobacco.
  • Increase the tax rate for snuff from $1.51 to $26.79 per pound.
  • Increase the threshold for small and large cigars from 3 pounds per thousand to 4.5 pounds per thousand.
  • Establish an unprecedented inflation adjustment, such that the foregoing rates would automatically increase annually with inflation.

The bill also would establish a massive, cigarette industry-wide $3 billion penalty if smoking rates are not reduced by 5% annually.  Manufacturers would be exempt from the penalty if they do not account for at least 1% of youth smoking.

Senate Bill 194, introduced on January 31st by noted anti-tobacco Senators Durbin, Blumenthal and Lautenberg, has slightly more modest goals, but would be no less devastating for the e-cigarette industry and would impose massive increases for tobacco products other than cigarettes.

Senate Bill 194 would:

  • Authorize the Treasury Department to impose federal excise taxes on e-cigarettes (also at a rate equivalent to cigarettes) if FDA deems e-cigarettes to be “tobacco products.”
  • Increase the pipe tobacco rate to the same as RYO tobacco.
  • Increase taxes for large cigars to a minimum of 5.033 cents per cigar (this measure is designed to ensure that all cigars are taxed at least as much as cigarettes) and to a maximum of $1.00 per cigar.
  • Increase the tax rate for snuff from $1.51 to $13.42 per pound.
  • Increase the tax rate for chewing tobacco from 50.33 cents to $5.37 per pound.
  • Amend the definition of RYO tobacco to include any processed tobacco that is transferred to someone other than a permitted manufacturer (this would close an arguable loophole that allows individuals to make their own RYO tobacco cigarettes without tax payments).

Similar bills saw no action during the 2012 legislative session, but these bills could see action this year without the pressure of election-year politics.

For questions and/or comments, please contact Bryan Haynes, at 804.697.1420 or by email.

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