Taxing e-cigarettes gets serious look in NH

A New Hampshire retail store displays Juul, which is the most popular form of e-cigarettes sold in the state. Gov. Chris Sununu and the Democratic-controlled House of Representatives are proposing the state become the first in New England and only the ninth nationally, along with the District of Columbia, to subject e-cigarettes to the state’s tobacco tax.

CONCORD — Gov. Chris Sununu and the Democratic-led Legislature have fought bitterly over tax increases and tax cuts, but they seem to be in sync when it comes to one controversial hike.

That’s to broaden the state’s tobacco tax to include e-cigarettes.

Sununu, a two-term Republican, came into office campaigning to cut business taxes and to oppose any “new taxes.”

This proposal, however, tucked into the so-called trailer bill (HB 2) of the state budget, would make New Hampshire the first state in New England and only the 10th nationally to tax e-cigarettes.

The rate — 65 percent of the wholesale price — would be the second highest wholesale tax in the country, only lower than Minnesota at 90 percent.

Victor Vitale runs a vaping store in Hudson.

“I’ve lived in New Hampshire 21 years. I can never remember us rushing to be the first to tax anybody,” Vitale told the House Ways and Means Committee last month.

“We will be taxing a product that helps people quit smoking. This is crazy,” he said.

Sununu insisted he hasn’t broken his anti-tax pledge.

“It’s not a new tax, it’s a new product. This commonsense update merely closes the existing loophole for new nicotine-based products so that these products are treated the same,” Sununu said in a statement.

That’s not how Sununu’s GOP colleagues in the House of Representatives have seen it.

The Democrat-controlled House initially endorsed a companion bill (HB 660) that would also impose the tax.

House Republicans opposed it, 141-6.

Rep. John Hunt, R-Rindge, is the former chairman of the House Commerce Committee.

“The minority is not only opposed to the outrageous tax rate, but also the new definition of ‘tobacco products’ that the committee settled on that appears to also tax vaping equipment,” Hunt wrote last month.

Unlike the other bill, Sununu’s proposal in the budget would exempt vaping equipment from the tax.

House Republicans are already campaigning against Democrats who voted for the tax, such as first-term Rep. Cole Riel of Goffstown.

“All the Republicans in Goffstown, Weare and Deering which I represent voted NO. Democrat Representative Cole Riel voted a BIG YES to tax your retail store and the tax payers more. 65.03% more,” Rep. John Burt, R-Goffstown, posted on social media after some Cumberland Farms owners mounted an e-campaign against the tax.

States slow to act

The state chapter of the American Cancer Society and a host of other public health groups praised Sununu for his approach as the rates of young people trying vapor products continues to rise.

“These are a new delivery system to get people addicted to nicotine. If they can be used by responsible adults exclusively to help them stop traditional smoking, that’s one thing, but they are not approved cessation devices,” said Mike Rollo, the state anti-cancer group’s lobbyist.

“The governor deserves a lot of credit for recognizing what a public health threat this has become.”

When e-cigarettes first came onto the market in 2007, states were slow to tax or regulate the products.

Policymakers were unsure if vaping would catch on and also if it would be an effective way for adults to quit smoking cigarettes.

Last January, the New England Journal of Medicine published findings from British researchers who concluded e-cigarettes worked nearly twice as well as nicotine patches and gum at helping smokers quit.

In another study last February, however, American teens who used e-cigarettes were four times more likely at some point to try a regular cigarette.

There are two basic forms of vaping products.

The first is an open container system that allows the user to refill the liquid they inhale and also to adjust how much, if any, nicotine they want to take in.

The closed system is a single-use vaping container that has a fixed amount of nicotine.

In a relatively short period of time, Big Tobacco has cornered the market on these closed-system products.

The No. 1 seller by far is Juul.

Altria, the maker of Marlboro cigarettes and other brands, now has 35 percent ownership in Juul, and the brand is aggressively marketed on television and radio as a good way for adults to quit cigarettes.

Critics say its flavored vapors are aimed at getting kids to try them.

It’s illegal for anyone younger than 18 in New Hampshire to buy e-cigarettes.

Third of 12th-graders vape

“A custodian asked school officials in Franklin why are kids throwing away all their thumb drives. They are these Juul cartridges that are made to look like thumb drives,” said Rollo. “We’re also back to the Wild, Wild West again when Big Tobacco can freely go on TV and try to get kids hooked.”

House Ways and Means Chairman Susan Almy, D-Lebanon, told her members her mission is simple.

“We have to get rid of the Juuls and their equivalents, the closed systems, because there is an epidemic among our youth,” Almy said.

According to the state’s risk behavior survey, nearly one quarter of New Hampshire’s youth vape, which is one of the highest rates in the country.

Among high school seniors, 30% in New Hampshire said they regularly vape.

But Brittany Adams, spokesman for the RAI Services Co., warned such a high tax could force smokers to quit vaping and go back to cigarettes.

“We share New Hampshire’s concern about youth use of vapor products and believe that minors should never use vapor or any other tobacco products. However, the proposed vapor tax in HB2 would be anywhere from 82 to 248% higher than the state’s tax on cigarettes,” Adams said in a statement.

“We urge legislators to consider the unintended consequences this proposal may have on adult smokers, such as deterring them from considering potentially less harmful products.”

Vuse, another closed vape brand, is owned by the R.J. Reynolds Vapor Company a subsidiary of Reynolds American Inc. (RAI).

Those supporting the business of refillable products say Big Tobacco could survive such a tax, but small vape shops will go under.

Alex Moody, chief executive officer of Kinetik Labs of Franklin, said he sells products to retail stores in eight states that include 47 different levels of liquids down to some with no nicotine at all.

“The cigarette tax is $1.78 a pack. This is going to equate to $7.88 per unit of an open vape system. That’s not sustainable,” Moody said.

There’s evidence New Hampshire’s vape market is doing well.

Healthy retail vape market

The New England Vaping Association has 160 members; more than 60 of them are in New Hampshire.

The N.H. Department of Revenue estimates the tax could raise $4.5 million in the first year and up to $7 million in the second.

Officials admit it’s uncharted territory, and the real impact is unknown.

Moody and others point out that Juul and other brands are bought online as well as in convenience stores.

“People will just move and buy their Juuls on the internet and you’ll lose all that revenue,” he predicted.

This campaign to pass the tax is by no means a done deal.

The House retained until early next year the other bill (HB 660) due to questions over how to collect this tax.

Almy said she’d like to figure out a way to exempt the vape shops from the levy. Legislative critics maintain that would be unconstitutional.

House budget writers changed Sununu’s proposal to delay the tax until July 1, 2020.

This came after the New Hampshire Grocers Association and convenience store owners warned New Hampshire would lose cross-border sales of not just these products if it gets out in front in New England with the first e-cig tax.

Meanwhile, lawmakers in neighboring states have been making their own moves. Massachusetts Gov. Charlie Baker has proposed a 40% tax, and fellow Republican, Vermont Gov. Phil Scott, has endorsed a 92% tax.

Sen. Jeanne Shaheen, D-N.H., filed legislation for the federal government to levy a new fee on tobacco companies to finance programs to warn Americans about the dangers of using e-cigarettes.

“The increase in e-cigarette use among youth is staggering and the potential health effects are deeply disturbing. It’s past time to crack down on the culprits of this epidemic,” Shaheen said.

In his federal budget, President Trump endorsed the fee to raise at least $100 million a year.

“Let’s wait for the other states to raise (their) prices first before New Hampshire puts its level below our surrounding states,” urged John Dumais, president of the grocers lobby.

“For 50 years that’s been a formula that’s worked for New Hampshire.”