North Carolina is proposing a special 5 cents per milliliter tax on the liquid used in electronic cigarettes. This is over and above state and local sales taxes, which are already being collected on e-cigarettes. This new tax comes at the request of RJ Reynolds, the same company that requested an excise tax in Oklahoma, where the provision failed because of the negative impact it would have had on small businesses. If this law passes, North Carolina would be only the second state in the nation to have an added tax on e-cigarettes. Other states, including South Carolina, Kentucky, Indiana, Ohio, Massachusetts, Vermont, Oklahoma, Utah, Washington, Oregon, Hawaii, and many others, have rejected efforts to levy a new tax on e-cigarettes. Minnesota is the only state in the country that has a tax over and above the standard sales tax on e-cigarettes.
E-cigarettes, along with every other product purchased in North Carolina, are already subject to state and local sales tax, a fair and equal tax applied to all purchased goods. This additional tax on e-cigarettes is simply a "sin tax." Governments use these sin taxes to discourage the use of harmful products or to generate compensation to the state for the harm society is deemed to suffer at the hand of these products. One reason Massachusetts and Vermont have rejected this tax is because e-cigarettes have been proven to help smokers quit, and are a healthier alternative to cigarettes. If the legislature proceeds with levying this new tax on e-cigarettes, it will be favoring some consumers’ decisions over others, a direct affront to individual liberty. This new tax will clearly hurt small businesses that make and sell e-cigarettes, and will, in all likelihood, aid large cigarette companies.
An example of a small business that will be negatively impacted by this tax is Madvapes LLC. This small business started in a Mooresville, North Carolina, garage in 2009 and has since grown to manufacture, distribute, and develop e-cigarette products. Madvapes has retail operations in Hickory, Mooresville, Denver, Charlotte, Concord, Pineville, Fayetteville, Hope Mills, Jacksonville, and Morehead City, as well as locations in South Carolina, Georgia, New Jersey, and Massachusetts. This one business occupies 90,000 square feet of warehouse and retail space in North Carolina and employs more than 100 people. There are over 80 small e-cigarette businesses in North Carolina doing the same thing, many with multiple locations across the state.
This e-cigarette tax stands to hurt small businesses like Madvapes, in addition to tens of thousands of traditional retailers and wholesalers, because it will classify a vapor product as a tobacco product and would therefore require a tobacco license to sell, distribute, or import e-cigarette products. In addition to the increased regulatory burden, this would also add costs to the product and provide an unfair advantage to large companies who already have these operations and licenses in place. Small businesses would be forced to expend huge sums for lawyers and accountants to ensure compliance with licensing and reporting requirements, as well as possibly posting bond with the state government. These extra costs could cause some of the existing e-cigarette businesses in North Carolina to shut down.
The manner in which this bill is making its way through the legislature is inimical to a transparent democratic political process. During the interim between the long and short sessions, the Revenue Laws Study Committee met to address issues that arose from the 2013 tax reform legislation. The committee drafted a bill to correct and clarify some of the provisions in the tax reform law, but they decided to add the e-cigarette tax to the Omnibus Tax Law Changes bill. How ironic that clarifications to our state’s most significant tax reform are now the political vehicle for an unnecessary tax increase. House Democrats tried to remove the tax, but due to political maneuvering, the motion died in a House Committee, and the tax survived.
After passing with a bipartisan vote in the House last week, the bill was sent to the Senate and heard in the Senate Finance committee Tuesday night. No amendments were sent forward to strike the e-cigarette tax from the omnibus bill during the committee. The entire Senate will vote on the bill today during their session. Hopefully someone will submit an amendment from the floor of the Senate to remove the e-cigarette tax today, because the citizens of North Carolina deserve transparency in the law-making process. This tax should be pulled from the omnibus bill by the Senate and debated separately.
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