As tobacco use declines, state to tax e-cig fluid

MADISON - Wisconsin relies heavily on taxing cigarettes, but this source of revenue is declining as people move away from traditional tobacco products, according to a new report.

And as tobacco sales slow, lawmakers are looking to capitalize on the growing electronic cigarette industry by imposing in the recently passed biennial budget a five-cent-per-milliliter excise tax on e-cigarette fluid.

Wisconsin ranked fourth in the share of general revenue collected from tobacco taxes, with 2.6% of the state’s revenue coming from them in 2016, according to an analysis by the nonpartisan Wisconsin Policy Forum. This revenue, however, has continued to decline since reaching nearly 3.5% in 2011.

A May estimate from the Legislative Reference Bureau projected this decline to accelerate. In fact, the state collected nearly $105 million less from cigarette taxes in 2018 than it had in 2010.

“The state’s reliance on tobacco tax revenue increasingly is undermined

by declining use of traditional cigarettes,” the report said.

Now, lawmakers are shifting their focus toward e-cigarettes.

The new tax on e-cigarette fluid is projected to collect about $5.5 million in new revenue over the next two years. Democratic Gov. Tony Evers’ plan would have generated $34.7 million in new revenue in the next two years, the report noted.

The plan passed in the budget, which will take effect Oct. 1, will put a $1.50 tax on a 30-milliliter bottle of ecigarette fluid. Evers’ proposal would have taxed both e-cigarette devices and fluids 71% of the manufacturer’s list price.

These policy changes come as ecigarettes are becoming increasingly popular, particularly among younger populations. The report notes that ecigarette use among Wisconsin high schoolers has “increased tenfold in just the last six years.”

The report acknowledges that supporters of the tax say it will discourage smoking, while opponents of the tax claim taxing e-cigarettes will hinder traditional smokers’ access to less harmful alternatives.

Despite approval of the new tax, the report said it is “unlikely to mark the end” of Wisconsin’s e-cigarette taxation debate.

It noted lawmakers may be faced with the challenge of whether is it appropriate to “augment the state’s reliance” on another form of tobacco-related tax revenue and emphasized the importance of public health considerations for adult and teen smokers.

“Growing e-cigarette use and continued declines in tax revenue from traditional cigarettes mean the issue isn’t going away,” it said.

At least 20 states have passed an ecigarette tax statewide or in certain jurisdictions.