Today’s map looks at the design of excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. es for vaping and tobacco alternatives, which is important in the pursuit of harm reduction from smoking. Higher vapor taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es on products such as E-cigarettes could encourage vapors to go back to smoking cigarettes and will discourage cigarette smokers from switching to vaping products.
Since vaping entered the market in the mid-2000s, it has grown into a well-established product category and a viable alternative to smokers. So far, 30 states and the District of Columbia have imposed an excise tax on vaping products. While vapor taxes may represent an untapped revenue source for states that have yet to impose an excise tax, substantial revenue is unlikely in the short term.
Vapor taxing methods vary. Authorities tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. d on price (ad valorem), volume (specific), or with a bifurcated system that has different rates for open and closed tank systems.
Of those that tax wholesale values, Minnesota tops the list with a 95 percent rate and Vermont follows closely at 92 percent. Delaware, Kansas, Louisiana, North Carolina, and Wisconsin all share the lowest per milliliter rate ($0.05).
The following map shows where state vapor taxes stand as of July 1, 2022. Among the highlights in changes:
- Indiana was the only state to add a tax to vaping products in 2022: 15 percent of the gross income received by retailers.
- California added a retail tax of 12.5 percent in addition to raising its tax to 61.74 percent on wholesale transactions.
- Colorado also increased its tax, from 30 percent to 35 percent on wholesale transactions.
Vapor products can deliver nicotine, the addictive component of cigarettes, without the combustion and inhalation of tar that is a part of smoking cigarettes. While more research relating to the potential harm-reduction qualities of vapor products is needed, for now, the consensus is that vapor products are less harmful than traditional combustible tobacco products. Public Health England, an agency of the English Ministry for Health, concludes that vapor products are 95 percent less harmful than cigarettes.
Given this difference in harm levels, it is important to understand the concept of harm reduction and its relevance for vapor products taxes. Vapor products—even if unhealthy in their own right—are highly attractive as an alternative to smoking. After all, one main reason smokers have a hard time quitting is the addictive nature of nicotine. Harm reduction is the concept that it is more practical to reduce the harm associated with the use of certain goods rather than attempting to eliminate it completely through bans or punitive levels of taxation.
Protecting access to harm-reducing vapor products is intertwined with tax policy because nicotine-containing products are economic substitutes. Low tax rates on vaping encourage consumers to switch from combustibles. High excise taxes on harm-reducing vapor products risk harming public health by pushing vapers back to smoking. A recent publication found that 32,400 smokers in Minnesota were deterred from quitting cigarettes after the state implemented a 95 percent excise tax on vapor products.
If the policy goal of taxing cigarettes is to encourage cessation, vapor taxation must be considered a part of that policy design. For more discussion on the ideal design for vapor taxes and other excise taxes, check out our recent report.
|State Vaping Tax Rates
|61.74% of wholesale; 12.5% of retail
|35% of manufacturing price
|10% of wholesale price
|0.05 per mL
|District of Columbia
|80% of wholesale
|7% wholesale + $0.05 per mL
|$0.05 per mL
|15% wholesale, $1.50/cartridge
|$0.05 per mL
|43% of wholesale
|12% retail (60% if less than 5mL)
|75% of wholesale
|95% of wholesale
|30% of wholesale
|8% wholesale, $0.30 per mL
|$0.10 per mL open; $0.30 per ML closed
|12.5% wholesale; $0.50 per cartridge
|$0.05 per mL
|$0.10 per mL
|65% of wholesale
|56% of wholesale
|92% of wholesale
|$0.066 per mL
|$0.09 per mL open; $0.27 per mL closed
|$0.075 per mL
|$0.05 per mL
|15% of wholesale
Note: This post has been updated on July 6, 2022 to include Maryland’s tax on vapor products.
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