North Carolina passed a law during the 2014 legislative session taxing the liquid used in electronic cigarettes at an additional 5 cents per milliliter. Electronic cigarettes are already subject to the state sales and use tax.
Add-on electronic cigarette taxes have been introduced in 20 states, but only two have enacted them — Minnesota in 2012 and North Carolina in 2014. Eighteen states have said no.
The electronic cigarette market in North Carolina is currently dominated by small businesses. This tax will hurt small businesses because it will require a tobacco license to sell, distribute, or import electronic cigarette products and force them to expend huge sums for lawyers and accountants to ensure compliance.
This tax violates the most important principle of good tax policy—neutrality. It is bad economics for the government to tax some goods and services more heavily than others. This new tax distorts economic and personal decisions by penalizing some consumer choices relative to others.
The North Carolina General Assembly should make history and become the first state in the country to repeal an electronic cigarette tax.
by Sarah Curry
Director of Fiscal Policy Studies
