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As Vapers Organize, Legislature Scrambles to Impose New E-Cig Tax – ‘Compromise’ Proposal Even Higher Than the Original

Dennis Hobart of Rainier, Geraldine Alvord of Buckley and Eva Hobart of Rainier take a 'vape break' on the Capitol steps Saturday.

Dennis Hobart of Rainier, Geraldine Alvord of Buckley and Eva Hobart of Rainier take a ‘vape break’ on the Capitol steps Saturday.

OLYMPIA, March 10.—E-cigarettes, the come-from-nowhere issue of the year, seem to have prompted one of the strangest “compromise” proposals in state legislative history. Lawmakers eager to slap a whopping tax on the burgeoning biz started with a plan that would have doubled the cost of “vaping.” Now they are floating what they call a compromise plan – which would quadruple it.

Maybe it was just a big stupid goof, but it shows that the new thing in nicotine is perhaps the least-understood innovation around – a way of delivering nicotine without the harms associated with cigarette-smoking. Yet because the product has some sort of relationship with smoking, some lawmakers argue that vapers ought to be taxed just like smokers – through the nose. An early proposal would have imposed a 95 percent tax. Now, in a bid to pick up votes, a new proposal being floated in the 2014 Legislature’s final days aims to cut that in half. But in the rush to draft a bill it appears that sponsors missed a key detail – and instead of cutting the proposed tax, they tripled it.

“I think clearly it shows they don’t understand the industry,” says lobbyist Stu Halsan, who represents the newly formed Washington Vapes trade association – an organization of vape-shop owners and manufacturers formed in frantic haste in recent weeks when it became clear lawmakers would attempt some sort of move against the business. “The FDA is looking at what to do with this product,” Halsan says. “Taxation at this point is more than premature.”

It is one of the more curious debates that has taken place in the Legislature – precisely because there hasn’t been a debate. The issue really isn’t about taxation, but rather about whether e-cigarettes ought to be discouraged or celebrated as a matter of state policy. It is the sort of question that – if anyone considered it worth thinking about at all — normally would be routed through health-policy committees, studied by public-health officials and pondered by experts. Instead the tax bill popped up a couple of weeks ago in the House Finance Committee, got a quick vote, and now appears to be on a fast track to the House floor. And it is one of a hundred such bills that will get the quick-gavel treatment in the waning days of the 2014 legislative session, which ends Thursday.

Should lawmakers impose a tax so punitive that it would wipe out the business just as it is taking hold? A business that seems to be accomplishing what generations of government anti-smoking campaigns have not? These are the kinds of questions that shouldn’t be decided in a rush, says state Rep. Dick Muri, R-Steilacoom, one of the Legislature’s biggest vape-biz boosters. “This is more than a nice little tax,” he says. “This is a humungous tax. The power to tax is the power to destroy.”

Rush to Tax

Vape-shop worker Jason Carnahan of Vancouver (behind cloud) carries a sign that makes a point about the 75-percent tax proposal.

Vape-shop worker Jason Carnahan of Vancouver (behind cloud) makes a point about the 75-percent tax proposal.

E-cigarettes, if you’re new to the issue, really don’t have much in common with traditional cigarettes. They use a small battery-powered charge to vaporize “juice” that generally contains some level of nicotine – a cleaner and purer way to inhale, avoiding the carcinogens present in cigarette smoke. First seen on the market a decade ago, e-cigarettes have boomed over the last couple of years, encouraging some 300 specialty shopkeepers across the state to open their doors. The trade has stimulated the development of an entire new industry in supplies and equipment, at this stage dominated by small-business operators. Of course health has something to do with it, but part of the reason e-cigs have been such a potent competitor for regular smokes is the level of taxation. Right now the business pays the same taxes everyone else does – sales taxes at the cash register, business and occupations taxes on gross receipts. So e-cigs are cheaper.

Yet most lawmakers don’t see a difference between e-cigs and smoking. Tobacco products are taxed right now at a level that aims to get people to stop, at the same time that the tax generates enormous revenue for the state. House Finance Chair Reuven Carlyle, D-Seattle, argues that because e-cigs are a nicotine delivery system just like cigarettes, the state ought to take the same dim view. His tax measure, House Bill 2795, awaits action on the House floor. Meanwhile in the Senate, there is talk of letting the bill pass in return for a tax-break bill desired by the upper chamber — the extension of a research and development tax credit that is scheduled to expire. It is one of those issues that will be decided when the final budget deal is unveiled, sometime in the next two days.

Perhaps the biggest indication of the rush in which the proposal has been developed is the enormous goof that shows up in the latest version of the House measure. In a bid for votes, advocates have been suggesting that e-cigarettes ought to be taxed at half the rate of cigarettes — the standard split-the-baby-down-the-middle approach so common at the statehouse. But a striking amendment to HB 2795 that surfaced Friday, sponsored by state Rep. Steve Tharinger, D-Sequim, doesn’t do that. Instead it sends the tax through the roof.

Big Math Problem

Bottle of 'e-juice,' equal to five packs of cigarettes, sells for about $12 retail. Proposed tax would add $28.85. Sales tax would be levied on top of that.

Bottle of ‘e-juice,’ equal to five packs of cigarettes, sells for about $12 retail. Proposed tax would add $28.85. Sales tax would be levied on top of that.

The original bill imposed a 95 percent tax on wholesale e-cigarette products, and the version of the bill that passed out of the House Finance Committee last week cut it to 75 percent. The striker takes an entirely different approach. It imposes a tax of 8 cents per milligram of nicotine on products that contain nicotine – not counting the gum, patches, and other stop-smoking nostrums that have been approved by the Food and Drug Administration. What people are forgetting is that milligram measurements are by-the-milliliter, Halsan says.

So a tiny little 15 milliliter bottle of Marlboro-strength vapor-juice that now costs about $12 – about the equivalent of five packs of cigarettes contains 360 milligrams of nicotine. It would be hit with a tax of $28.85. Sales tax would pyramid on top of that. So when you consider that a pack of Reds costs about $9 these days, or $45 for five, there would really be no price difference at all. The big cost advantage that has encouraged thousands of ex-smokers to invest in costly “vaping” apparatus would be no more. There goes one of the biggest incentives to quit. Vapers tell Washington State Wire the cost advantage has done what generations of health warnings have not. “The cigarettes I was smoking cost me about $10 a pack,” says vaper Eva Hobart of Rainier. “Whereas this is seven dollars and lasts me for five days – as well as getting the cigarette smoke out of my lungs that was there for so many years.”

Gut-Level Reaction

Senate Minority Leader Sharon Nelson, D-Maury Island.

Senate Minority Leader Sharon Nelson, D-Maury Island.

The quick acceptance of the e-cigarette tax seems to have more to do with gut-level reaction to smoking than with the product itself. What official discouragement has come so far has been based on the old paradigm: The Washington State Medical Association has come out against it, for fear children might take it up. And some lawmakers say the old way of thinking ought to apply. “From what I am understanding about e-cigarettes, they are not a means, right at this point, to stop smoking,” Senate Democratic Leader Sharon Nelson told reporters Monday. “Basically, a lot of them are heavily loaded with nicotine, and when you look at the progress we have made at getting kids not smoking in this state, I don’t want to have another product that will hook more of our youth. I grew up with two parents who smoked heavily, eight packs a day between the two of them. I mean, it is not something we want to reintroduce in a new type.”

Those stone walls that separate the Capitol from the world are mighty thick. The protests are just beginning. At a rally over the rainy weekend, some 250 vapers showed up on the Capitol steps – rather less than the thousand that organizers had hoped for, though the downpour might have had something to do with it. Nevertheless they engulfed the Capitol in a cloud – and one that posed none of the risks of secondhand smoke.

Vape-shop worker Dennis Alvord of Buckley says he wonders if the Legislature is planning on taxing vegetables. They are nicotine delivery systems as well. “Cauliflower has nicotine, broccoli has nicotine. So let’s go crazy and just start taxing everything. Tax the air we breathe – because that has more junk in it than this stuff does.”

One Percent of the Harm

State Rep. Chris Reykdal, D-Olympia.

A tax he doesn’t like: State Rep. Chris Reykdal, D-Olympia, addresses crowd on Capitol steps.

The tax plan seems to be shaping up as a partisan issue: Biggest support is on the Democratic side; Republicans are trying to decide how far they want to take their opposition. They note that the tax would strangle a promising business – something their side of the aisle is generally loath to do. And they say they have been astounded by the way the vapers have quickly organized themselves for political action, a fair percentage with the sort of tattoos and nose rings one does not generally see at the Capitol. They are likely to become a political force if the Legislature pushes them, says House Floor Leader J.T. Wilcox, R-Yelm. Surveying the crowd, he said one of the big lessons he has learned is that the Legislature looks for easy targets. “There is this constant search for who we can tax more, and in general what they do is find an unpopular group or people who aren’t organized, and especially people who don’t have a paid mouthpiece to come down here and fight for them. That’s what they thought was going to happen – and it didn’t.”

Then there’s the fact that no one has demonstrated harm. Muri, who appeared at the rally, says that as a member of the Pierce County Board of Health he initially wanted to regulate vaping out of business, but he had second thoughts when he began researching the issue. Nicotine is perhaps a little more harmful than caffeine, he says – which is to say, not very. “Smoking itself has been a huge harm to society; the nicotine was never the thing that was harmful. I’ve seen some analyses that say vaping is less than 1 percent of the harm of cigarette smoking. We need to promote it, to get people to quit the really bad habit, which is smoking.”

But perhaps the strongest endorsement of the vapers came from one of the staunchest progressives at the statehouse, state Rep. Chris Reykdal, D-Olympia – the lone Democrat who voted against the measure in committee. He admitted it’s kind of unusual to see a liberal Democrat come out against a tax. He told the crowd that his mother had died of lung cancer, something vaping might have prevented. He said tobacco taxes hit the poor disproportionately. But what convinced him there was a tax he didn’t like was real-world experience. His 40-year-old brother-in-law finally managed to quit smoking after 25 years, after trying patches, gum, everything — when he picked up an e-cigarette. Saved him $250 a month. He used the money to sign up for insurance under the Affordable Care Act.

“How was he able to afford that?” Reykdal asked. “Because he is vaping. That is why. What do those of us in this Legislature say to somebody who did everything we wanted you to do? We wanted you to stop smoking. We wanted you to save costs. We wanted you to have more disposable income and we wanted you to support small business. We wanted you to buy your own health care plan. He did all of that and now the answer is sorry, we want to tax you some more. No way. No way. Not going to happen.” 

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