United States: New Jersey Legislature Considering 75% Tax On Electronic Cigarettes, Other Tobacco Product Tax And Licensure Changes

Pending before the New Jersey Legislature is Assembly Bill No. 1586, which, among other things, would "impose[] the New Jersey Tobacco Products Wholesale Sales and Use Tax on electronic cigarettes." New Jersey does not currently impose excise taxes on electronic cigarettes. The bill has been referred to the Assembly Health and Senior Services Committee, where it remains under consideration.

Tax on Electronic Cigarettes

Assembly Bill No. 1586 would impose a "wholesale sales tax rate for [electronic cigarettes and similar tobacco-substitute smoking devices] and their components . . . at a rate of 75%." This is intended "to impose a tax burden in line with a similar tax burden imposed upon cigarettes under the cigarette tax act."

The tax would specifically apply to any "electronic cigarette," defined in the bill as "a device that can deliver nicotine, nicotine and flavor, or other chemicals or substances to a person inhaling from the device that electronically or by other means vaporizes a liquid solution into an aerosol mist or vapor, simulating the act of tobacco smoking. An electronic cigarette includes but is not limited to any components, parts or accessories thereof which contain nicotine, such as cartridges and vials, and includes any delivery device components, whether or not sold separately[.]"

Electronic Cigarettes' Treatment as "Tobacco Products"

Notable for other purposes of the "tobacco products" taxation and licensure regime, Assembly Bill No. 1586 would change the definition of "tobacco products" to include defined "electronic cigarettes" as well as substances that may be used with them.

The bill would accomplish this by the following amendments (added language shown in underline, and proposed deletion of existing statutory language shown in bolded brackets):

"'Tobacco product' means any product containing, made, or derived from any tobacco, nicotine or other chemicals or substances for [personal] human consumption, or placement in the oral or nasal cavity or otherwise into the human body, whether chewed, smoked, absorbed, dissolved, inhaled, snorted, sniffed, or ingested by other means, including, but not limited to, cigars, little cigars, cigarillos, chewing tobacco, pipe tobacco, smoking tobacco and their substitutes, [and] dry and moist snuff, and electronic cigarette, but does not include cigarette as defined in section 102 of the 'Cigarette Tax Act,' P.L.1948, c.65 (C.54:40A-1 et seq.). 'Tobacco product' does not include any product that is approved by the United State Food and Drug Administration for tobacco cessation, nicotine cessation, or other therapeutic purpose if that product is marketed and sold solely for that approved purpose[.]"

Other Changes to the Tobacco Products Taxation and Licensure Regime

Assembly Bill No. 1586's other notable changes include "reestablish[ing] the wholesaler's price charged by the wholesaler upon their sale of any tobacco product to a retail dealer as the base upon which the tax is determined." As explained in the co-sponsors' statement, "[t]his was the tax base imposed under the tax first enacted in 1990 but was changed in 2002 to the manufacturer's wholesale price, which has complicated the calculation, collection and enforcement of the tax as the sale by a manufacturer to a wholesaler does not trigger the wholesaler's tax liability."

Similar Bills in Recent Legislative Sessions

Of note, similar bills have been introduced in recent legislative sessions, though none has yet made it to a vote by either of the legislative chambers:

2016-17 Legislative Session

  • Assembly Bill No. 1832 [Assemb. Herb Conaway, Jr. (D-Dist.7); Assemb. Valerie Vainieri Huttle (D-Dist. 37); and Assemb. Daniel R. Benson (D-Dist. 14)]; and
  • Senate Bill No. 1235 [Sen. Joseph F. Vitale (D-Dist. 19)];

2014-15 Legislative Session

  • Assembly Bill No. 4251 [Assemb. Herb Conaway, Jr. (D-Dist.7); Assemb. Valerie Vainieri Huttle (D-Dist. 37); and Assemb. Daniel R. Benson (D-Dist. 14)]; and
  • Senate Bill No. 1235 [Sen. Joseph F. Vitale (D-Dist. 19); Sen. Richard J. Codey (D-Dist. 27); and Sen. Loretta Weinberg (D-Dist. 37) (co-sponsor)].

The furthest any has gotten has been Senate Bill No. 1235's favorable report with amendment (five in favor, two against, and two abstaining) out of the Senate Health Human, Human Services and Senior Citizens Committee in the 2014-15 session. Among other things, the committee amendments would also have increased the tax rates on other "tobacco products," including an increase, "from 30% to 68%," of "the general tax rate imposed on tobacco products." Senate Bill No. 1235 ultimately died in the Senate Budget and Appropriations Committee, where it was next referred.

It remains to be seen how Assembly Bill No. 1586 will fare in the present legislative session. We will continue to monitor for further developments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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