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The Tax Foundation is the nation’s
leading independent tax policy
research organization. Since 1937,
our research, analysis, and experts
have informed smarter tax policy
at the federal, state, and global
levels. We are a 501(c)(3) nonprofit
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Taxing Nicotine Products: A Primer
• The American nicotine market is developing faster than ever due to
introduction of non-combustible recreational nicotine products. These new
products, along with a greater consciousness about the dangers of smoking,
have prompted millions to give up smoking. This contributed to federal and
state excise tax collections on tobacco products declining since 2010.
• Excise taxes are commonly employed to discourage certain behaviors.
They do this by decreasing both supply and demand for a product via price
increases. They are also imposed to price in externalities associated with
consumption of specific goods.
• Current federal tax proposals seek to tax electronic nicotine delivery systems
(vapor products) at the same rate as traditional cigarettes. H.R. 4742 was
approved by the House Ways and Means Committee in October 2019 and
suggests taxing based on nicotine content.
• Twenty-one states currently tax nicotine products, but they do so in different
ways. States tax based either purely on price (ad valorem), purely on volume
(specific), or with a bifurcated design at different rates for open and closed
tank systems. More states are expected to introduce taxes on vapor products
• From a pure public health standpoint, the justification for taxing recreational
nicotine products can seem weak. Vapor products, heated tobacco, snus,
and nicotine pouches are all thought to be considerably less harmful than
cigarettes, which means substitution from cigarettes to any of these produ