Last week, Kansas, as part of a tax increase, passed a ruling that would place taxes on e-cigarettes. The new tax ruling could pose a threat to an industry that has only just begun. The tax plan was devised to generate a significant amount of revenue by boosting the current cigarette and sales tax rates. It was also introduced as a counter measure to the tax cuts planned by Governor Sam Brownback. Unfortunately, Republican legislators were forced to vote in favor due to an impending budget deficit of $400 million, which might lead to major budget cuts.
The tax on e-cigarettes was introduced at the end of the session by Republican State Senator, Les Donovan. The cigarette tax suggests an increase of 50 cents per pack, which is estimated to generate around $40.4 million every year. As for e-cigarettes, the tax increase will generate around $2 million per year, which accounts for only 5% of the budget deficit. The new tax rates are set to be implemented in July, this year.
The amendment was first introduced by Senator Donovan in the month of June, 2016. It was part of a legislative session that lasted a record breaking 113 days. The proposed, and now passed, tax ruling will see e-liquids being charged at 20 cents for each milliliter. Considering the fact that e-liquids are sold in 30 milliliter bottles, the tax amount would reach to 6 dollars for every bottle. This will add to the 6.5% sales tax that customers already pay. To put it simply, an e-liquid bottle normally costing $9.95 will now cost $16.60.
Many have criticized the sudden move. Spencer Duncan, spokesperson for the Kansas Vapers Association called the new tax ruling an eleventh hour decision that took the industry by surprise. He also argued that the draft for the bill was not up to par during a legislative committee discussion. He stated that the intent of the bill wasn’t clear enough.
The Association has requested the Joint Committee on Administrative Rules and Regulations to ensure that legislators take a look at the bill again before letting the Kansas Department of Revenue enforce it. Tuck Duncan, another lobbyist from the Kansas Vapers Association, argued that the legislative committee failed to have a proper hearing, ignored their own rules and shoved the bill in at the end of the session. He suggested that the committee look into matters again citing the above mentioned reasons.
In 2015, a similar tax was imposed on e-liquids suggesting a tax of 20 cents for every milliliter of “consumable material.” The Kansas Vapers Association criticized this provision as well, pointing out to the use of the phrase “consumable material”, which they said, created room for confusion. The Department of Revenue interprets the phrase to mean the total fluid volume used in an e-cigarette. However, the Kansas Vapers Association suggested that the phrase should only be applied to the nicotine content and exclude other contents such as chemicals and water.
The association stated that this would make a significant difference because the suggested tax rate would be the same as the cost of the product itself. However, the Department of Revenue relies on its own interpretation for all tobacco related products. They factor in total volume instead of nicotine content. Even so, due to the implementation date expiring, the tax ruling could not be enforced even though it went into effect. With regards to the new tax ruling, a public hearing will be held in March.