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Vapers beware: E-cigarettes in line for a big tax increase if Proposition 56 passes

Vapers beware: E-cigarettes in line for a big tax increase if Proposition 56 passes
E-cigarette liquid containing nicotine could be taxed at a rate as high as 67% if Proposition 56 passes. (Justin Sullivan / Getty Images)

Most of the attention on the Proposition 56 tobacco tax has focused on the potential $2-per-pack increase in the price of cigarettes.

Less examined is a provision under which the booming e-cigarette market would be taxed in California for the first time – and the increase will be huge.

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E-cigarette liquid containing nicotine could be taxed at a rate as high as 67%, according to state estimates, an amount that an e-cigarette trade group believes would boost the price consumers pay for a typical 30-milliliter bottle to about $30 from around $20 today.

Proponents of Proposition 56 argue the new taxes on e-cigarettes befit the danger cited by state public health officials and other experts that the product encourages youth tobacco use and creates other health risks.

But e-cigarette retailers are worried that the new tax could force them out of business and contend that the high tax rate is unfair given that even supporters of Proposition 56 concede that e-cigarettes are probably less harmful than traditional cigarettes.

"For us to be taxed as an equivalent to tobacco or cigarettes doesn't make sense," said Kari Hess, who owns a vape shop in Redding and is co-president of the Northern California branch of the Smoke-Free Alternatives Trade Assn.

The e-cigarette industry has grown exponentially since the products were first introduced in the United States about a decade ago. Research has shown that more teenagers are now using e-cigarettes than traditional ones. A 2014 estimate showed that 12.6% of adults nationwide had tried the product, in which a battery-powered device turns a liquid containing nicotine into inhalable vapor.

E-cigarette regulations have been slow to catch up, but they're now coming in force. This year, the federal Food and Drug Administration began formal oversight over e-cigarettes, banning sales to minors and requiring new marketing restrictions and health warnings. California lawmakers approved major legislation in the spring to set the minimum age to buy e-cigarettes at 21 and prohibit their use in restaurants, theaters, schools and public places where smoking already isn't allowed.

What these new regulations haven't done, however, is tax e-cigarettes as if they were tobacco. Proposition 56 would subject e-cigarettes to the same tax that smokeless tobacco and similar products currently face in California and raise that rate in line with the $2 per pack increase on traditional cigarettes.

Supporters of Proposition 56 said the decision to include e-cigarettes in their measure was simple: The state considers them like tobacco products so the measure does, too.

"If you've got nicotine, you're a tobacco product," said Jim Knox, vice president of California government relations at the American Cancer Society.

Research isn't definitive about the long-term effects of e-cigarettes, but many experts believe that they're not as bad for your health as traditional cigarettes. However, studies have raised concerns that e-cigarettes could serve as a gateway to other tobacco products among young people and continue to leave users at greater risk of heart attacks and other health problems than using no tobacco at all.

"While nobody knows for sure, and it'll be years before we do, my best guess is that they're about a third to as half as dangerous as cigarettes," said Stanton A. Glantz, a professor of medicine at UC San Francisco and supporter of Proposition 56 and strong e-cigarette regulations. "It's like jumping out of the fifth story of a building instead of the 15th story."

Supporters of e-cigarettes counter with studies showing that the products are much safer than tobacco, and could even serve as a means to help people stop smoking. Earlier this year, for instance, the Royal College of Physicians in Britain said the products appear to be effective in that goal and should be promoted as a less harmful alternative. Proposition 56 backers counter that if e-cigarettes are certified in the United States as a tobacco-cessation device, they won't be taxed under the measure.

Still, vape store owners see the initiative as far too heavy handed. Hess, the Redding store owner, said she's OK with a tax increase that's in line with e-cigarettes' health impacts compared with traditional cigarettes. But the large tax increase anticipated under Proposition 56 could have irreversible consequences for her store and the other estimated 1,200 to 1,500 vape shops across the state, she said.

"It would essentially put me out of business," Hess said.

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Debate over e-cigarettes has been mostly absent from the Proposition 56 campaign. Supporters, including doctor and hospital groups and insurance companies, have raised more than $27 million and are focusing on the health effects of traditional cigarettes.

Tobacco companies, some of which are invested in the e-cigarette business as well, have poured in more than $66 million to fight the measure. Their advertisements have attempted to poke holes in the initiative, pointing out that the industries funding the measure will benefit from a large portion of the revenue going toward California's Medi-Cal healthcare program for low-income residents.

The e-cigarette trade association, whose membership is largely mom-and-pop vape shops around the state, has only raised $3,600 in opposition, according to state campaign filings.

Follow me at @dillonliam on Twitter

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