Indiana lawmakers considering tax on e-liquids

A bill being considered by the Indiana General Assembly would tax the liquid used in e-cigarettes.

House Bill 1444, authored by Ways and Means co-chair Tim Brown, would impose a tax of 8 cents per milliliter on e-liquids that contain nicotine. According to the Legislative Services Agency, the tax, to be paid by distributors, could generate between $4.16 million and $7.33 million in annual revenue for the state.

Some state lawmakers see the tax as a way to curb nicotine usage, but vaping industry leaders say they aren’t happy about the suggested tax rate.

Eight other states currently tax e-liquids, but three states—California, Pennsylvania and Minnesota—tax it based on the wholesale value instead of by the unit, as proposed in Brown’s legislation.

The proposed rate of 8 cents would be the highest among the states currently taxing by the unit. Louisiana, North Carolina, Delaware and Kansas impose a 5-cent-per-milliliter tax, and West Virginia’s taxing rate is 7.5 cents per milliliter, according to The Tax Foundation.

The Indiana Smoke Free Alliance, a group that represents retailers and manufacturers of e-cigarettes and e-liquids, is opposed to the bill as written.

Amy Netherton, president of Indiana Smoke Free Alliance, called it “unnecessary” and “premature” at the House Ways and Means Committee meeting Tuesday.

Netherton criticized lawmakers for wanting to impose another hardship on the vaping industry when it is still recovering from the controversial law passed in 2016 that created a monopoly that severely restricted manufacturers’ ability to sell products in Indiana. Legislation approved in 2017 opened up the e-liquid market again, and the industry has seen significant growth since then, but Netherton said manufacturers “still have a long way to go.”

“You’re talking about implementing a tax two years after rebuild,” Netherton said.

E-liquid retailers who testified at the hearing said the proposed tax rate would significantly drive up the cost for customers, which could significantly hurt demand. Plus, none of the surrounding states impose a tax on e-liquids, so it could drive business across the border.

Shadi Khoury, founder of Indy E Cigs, said most of the vape juices he sells come in 60-milliliter bottles, meaning the tax would be $4.80 for a bottle that typically sells for about $25.

“I’m not against taxing our industry,” Khoury said. “I just think we need to have a larger discussion on how we do it.”

The Indiana Chamber of Commerce supports the bill, as it sees vaping as another health concern like smoking cigarettes.

The Center for Disease Control and Prevention estimates that 6 percent of adults in Indiana use e-cigarettes—more than 305,000 Hoosiers.

The bill remains in the House Ways and Means Committee.