Alaska’s 75% Wholesale Tax Would Harm Health

A new proposal that would introduce a 75 percent wholesale tax on vapor products in Alaska could make switching from combustible tobacco products very expensive for smokers. If enacted, HB 110 (SB 45) would tax nicotine vapor products (including components) at a rate comparable to the rate on other tobacco products and cigarettes.

Such a steep tax would markedly increase vapor products retail prices, which could limit the number of smokers that switch, according to Ulrik Boesen of the Tax Foundation. “While excise taxes on both cigarettes and vapor products can be a legitimate way to recoup some societal costs associated with nicotine consumption, it is hard to justify equal tax treatment between vapor products and combustible tobacco,” Boesen writes. “Worse than the disproportionate tax rate is the substitution that is likely to result in increased smoking as a result of the tax—a net negative for public health in Alaska. One recent study funded by the National Institutes of Health found that increasing taxes on vapor products would increase the number of smokers.”

Boesen recommends that lawmakers avoid price-based taxes. He says that for states seeking to recoup some societal costs associated with combustible cigarette consumption, taxes should be based on the e-liquid quantity. “Whether a device is expensive or cheap really does not matter for any harm resulting from use,” he writes. “For vapor products, the obvious choice is taxing the liquid by volume (that is, per ml). Such a design would actually target the harmful behavior and avoids taxing devices and components.”

In a statement accompanying the legislation, the bill sponsor, Rep. Sara Hannan (D), mentions youth use as the main reason for introducing the bill. While youth use of any nicotine product is a major issue, there has been marked improvements in tackling youth use in the last few years. In her statement, Rep. Hannan refers to Centers for Disease Control (CDC) data from 2018 where 21 percent of high schoolers reported vaping at least once in the last 30 days. In newer data from 2021, 11 percent reported use at least once in the past 30 days, and only 3 percent reported daily use.