The Governor proposes that revenue from the proposed e‑cigarette tax be deposited into a new special fund. When Governor Gavin Newsom (D) submits his revised budget proposal on Thursday, it will include a vapor tax increase. Considering that cigarettes are taxed at $2.87 per pack of 20, the proposal means that nicotine users could lower their tax liability by switching from vaping to smoking. “Estimating the Effects of Electronic Cigarette Excise Taxes on the Demand for Tobacco Products.” Mimeo, University of Kentucky. The Governor’s recent executive order directed CDTFA to require taxpayers to list e‑cigarette sales separately from other tobacco sales starting in January 2020. Pesko, Michael and Casey Warman (2019). The following legislative update was contributed by the Cigar Association of America (CAA) The California Department of Tax and Fee Administration (CDTFA) announced today that it is withdrawing Special Notice L‑698 [], Clarifying the Wholesale Cost Basis for Out‑of‑State Licensed Tobacco Products Distributors – Effective Oct. 1, 2019, effective immediately. Below is a recap of some of the most noteworthy laws, courtesy of Cap Radio. Stay up on the tax news and analysis that matters to you. The feasibility and effectiveness of cigarette tax stamps is due, in part, to the high degree of consistency in the size, shape, and amount of tax due on a pack of cigarettes. “The Effects of E‑Cigarette Taxes on E‑Cigarette Prices and Tobacco Product Sales: Evidence From Retail Panel Data.” National Bureau of Economic Research Working Paper 26724. Suite 950 California is the latest state to try to increase vapor taxes. “E‑Cigarettes and Cigarettes: Complements or Substitutes?” Mimeo, University of California, Berkeley. tax directly levied on certain goods by a state or federal government If the Legislature chooses to enact a new tax on e‑cigarettes, it has a range of options for allocating the resulting revenue. Cantrell, Jennifer, Jidong Huang, Marisa S. Greenberg, Haijuan Xiao, Elizabeth C. Hair, and Donna Vallone (2019). If the Legislature views cigarettes and e‑cigarettes as equally harmful, then taxing them at the same rate could make sense. The state levies a $2.87 per pack tax on cigarettes. (In particular, the rate is equal to this ratio multiplied by roughly 117 percent.) How would the tax interact with other state and federal policies? The excise tax increased by $2 from 87 cents to $2.87 per pack of 20 cigarettes on distributors selling cigarettes in California with an equivalent excise tax rate increase on other tobacco … COVID-19 Workplace Rules AB 685: Requires employers to notify workers of potential worksite COVID-19 exposures, report outbreaks to public health departments and gives Cal/OSHA more teeth to enforce pandemic safety The proposed CHP‑led enforcement task force, however, would not focus on e‑cigarettes specifically. Revenues. How would the tax rate affect e‑cigarette use? Source: California governor’s budget; Tax Foundation calculations. The administration’s comparison also does not account for federal taxes. Gov. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and global levels. State. California's cigarette … Options Range from Very Flexible to Very Restrictive. (For example, this is the current approach for allocating most tobacco tax revenues.). The estimates included in the 2020‑21 Governor’s Budget are reasonable, but actual revenue could be much higher or lower than those estimates. In fact, research that looked at the effect of vapor taxes in Minnesota concluded that 32,400 people who would otherwise have quit smoking traditional cigarettes still smoked them as a result of the tax. Recommend Very Flexible Approach. Ideally, this would mean depositing the revenue into the General Fund. The obvious choice is taxing the liquid by volume (that is, per ml). Examples include: The Legislature currently is considering further actions, including a bill that would ban flavored tobacco products (including flavored e‑cigarettes) and the tax proposal discussed in this report. $8 million of the Governor’s $10 million tax administration proposal would be for a stamp contract. California Governor Gavin Newsom signed Senate Bill (SB) 793 into law, banning the retail sale of flavored tobacco products in the state, effective January 2021. California is one of 18 states that currently levy statewide excise taxes on e‑cigarettes. 2020‑21 Spending Proposals. California levies a $2.87 per pack excise tax on cigarettes. Tax Likely Would Reduce E‑Cigarette Use Substantially. The bill, which banned flavored tobacco, added Article 5 (commencing with Section 104559.5) to Chapter 1 of Part 3 of Division 103 of the Health and Safety Code. We discuss in detail a number of advantages of flexibility in our 2018 report, Taxation of Sugary Drinks. If the Legislature chooses to enact a nicotine‑based e‑cigarette tax, we recommend that it direct the administration to adjust the tax rate for inflation. On the other hand, the Legislature would appropriate the funds during the annual budget process, and a wide range of programs would be eligible to receive the funds. State lawmakers still have to approve the governor’s new budget by mid-June. Oregon’s measure increases tobacco taxes $2 per pack, from $1.33 to $3.33, as well as creates a new tax for e-cigarettes. We recommend that the Legislature take an approach to revenue allocation that prioritizes flexibility. The City of Pleasanton adopted in September 2020 a ban on the sale of flavored tobacco and nicotine products that will go into effect starting January 1, 2021. Prices tend to rise over time. The Governor’s official January proposals include $17 million of expenditures from the new fund. The Tax Foundation works hard to provide insightful tax policy analysis. The Governor’s proposed trailer bill language designates the monies in the new fund for youth tobacco prevention programs, health care programs, and administration and enforcement of the new e‑cigarette tax. Even in the best‑case scenario, however, many of the uncertainties described above will remain. Consider How Funding Shortfalls Would Be Handled. “The Relationship Between Cigarettes and Electronic Cigarettes: Evidence From Household Panel Data.” Journal of Health Economics 61:205‑219. The Governor proposes $8 million in 2020‑21 and ongoing for a stamp contract. As discussed in The 2020‑21 Budget: Transportation, for example, the Legislature could consider a variety of options for funding the proposed enforcement task force, rather than relying exclusively on the new e‑cigarette fund. Cigarettes are also subject to California sales tax of approximately $0.43 per pack, which adds up to a total tax per pack of $1.30. In our view, the best available evidence suggests that the proposed tax likely would increase cigarette smoking among adults, at least over the first few years. General Fund Could Help Address Revenue Uncertainty. 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