The federal government currently imposes federal excise taxes on cigarettes, cigars, smokeless tobacco, roll-your-own tobacco and pipe tobacco. Will Congress add a tax on the nicotine used in electronic nicotine delivery systems?
That is the aim of H.R. 4742, introduced by Congressman Tom Suozzi (D-N.Y. 3d Dist.) and co-sponsored by Congressman Pete King (R-N.Y. 2d Dist.). As introduced, H.R. 4742 was titled as a bill “to amend the Internal Revenue Code of 1986 to impose a tax on nicotine used in vaping, etc.” Congressman Suozzi said in support, “Increasing the cost of vaping will have a direct correlation to decreasing the usage of vaping products.”
What would the bill do?
The bill would “impose a tax equal to the dollar amount [of tax imposed on small cigarettes] per 1,810 milligrams of nicotine (and a proportionate tax at the like rate on any fractional part thereof).” Such “taxable nicotine” would generally include “any nicotine which has been extracted, concentrated, or synthesized.”
The tax would not apply to nicotine approved by the FDA for nicotine-replacement therapy. The tax would generally not displace preexisting taxes on tobacco products, either. That is, the tax would not apply to “nicotine naturally occurring in the tobacco from which such product is manufactured” where such nicotine “has been concentrated during the ordinary course of manufacturing.”
Tax liability would fall upon the “manufacturer of taxable nicotine.” “Any person who extracts, concentrates, or synthesizes nicotine shall be treated as a manufacturer of taxable nicotine (and as manufacturing such taxable nicotine).” However, it is likely that the consumer would ultimately bear the cost of the tax in the form of higher retail prices.
The Joint Committee on Taxation estimates that, if enacted, H.R. would raise almost $9.9 billion in taxes from 2020 through 2029. According to Congressman Suozzi, this revenue would “be used to fund a number of important health initiatives,” such as requiring high deductible health plans “to cover the cost of inhalers used to treat chronic lung diseases like asthma” and allowing the use of health savings and flexible spending accounts “to purchase over the counter medications and menstrual care products.”
What about non-vapor nicotine products?
The tax on nicotine could extend well beyond the nicotine used for vapor products. The definition of “taxable nicotine” appears to be broadly worded. Where the specific exceptions are inapplicable, ostensibly the tax could extend to other products that are not presently taxed as cigars, cigarettes, smokeless tobacco, pipe tobacco, or roll-your-own tobacco.
What is the bill’s status?
On October 18, 2019, H.R. 4742 was introduced in the House of Representatives and referred to the Ways and Means Committee.
On October 23, the Ways and Means Committee considered the bill and held a markup session. At this session, the Committee made minor changes to the bill, including the addition of a short title: the “Protecting American Lungs Act of 2019.” By a 24-15 vote, the Committee reported the bill favorably.
Other congressional efforts to tax vapor products.
H.R. 4742 is not the first effort in Congress to extend the federal tobacco products excise tax to vapor products. Over the past several years, bills for a Tobacco Tax Equity Act have been introduced. E.g., S. 1837 (2017); H.R. 729 (2017); S. 450 (2015); S. 194 (2013); S. 3081 (2012). These bills would have taxed vapor products insofar as they have been deemed “tobacco products” subject to the FDA’s authority under the Family Smoking Prevention and Tobacco Control Act, 21 U.S.C. § 387, et seq. Under such bills, vapor products would be “taxed at a level of tax equivalent to the tax rate for cigarettes on an estimated per use basis as determined by” the Secretary of the Treasury.
H.R. 4742 is not the only bill before Congress that would extend federal excise tax to vapor products. On September 19, Senator Dick Durbin (D-Ill.) introduced the Tobacco Tax Equity Act of 2019, S. 2517. The bill was referred to the Senate Committee on Finance, which has taken no further action on it. Introduced by Congressman Suozzi on the same day, a bill for a Quell Underage Inhaling of Toxic Substances Act of 2019, H.R. 4425 (the “QUITS Act”) would address the taxation of vapor products the same way as the Tobacco Tax Equity Act. The bill for the QUITS Act was referred to both the House Energy and Commerce and Ways and Means Committees. Neither committee has taken any further action on the bill.
We will continue to monitor for further developments.