New legislative language that would regulate electronic cigarettes and place a low tax on the liquid used in the devices moves forward.
By Rose Hoban
In two votes on the House floor, an omnibus tax bill including a provision to tax e-cigarettes passed without difficulty.
As introduced, the Omnibus Tax Law Changes bill contained provisions that would have defined e-cigarettes not as tobacco products but as “vapor” products, not subject to tobacco-control laws. The bill also contained a 5 cent-per-milliliter tax on the liquid used in e-cigarettes to deliver nicotine.
In the end, the legislature’s only physician opposed an amendment that would have removed all the e-cigarette language to another bill for further discussion and debate. That amendment failed.
Instead, Rep. Jim Fulghum (R-Raleigh), a semi-retired back surgeon, supported an amendment that reverted the definition of e-cigarettes back to being a tobacco product, but left in place a tax that health advocates maintain is the equivalent of taxing a pack of cigarettes at 5 cents per pack.
And lawmakers appear to have been swayed by a veiled promise from cigarette manufacturers to create more jobs in the state.
Promise of jobs
During her presentation on the bill, sponsor Rep. Julia Howard (R-Mocksville) said an unnamed tobacco manufacturer has promised “a new opening of a factory in North Carolina that will provide close to 300 new jobs for us.”
“For the first time since I’ve been here, this industry is asking that we set the excise tax,” she Howard. “They’re asking us to tax them.”
During the initial presentation on the bill in a committee meeting earlier in May, a representative from Reynolds American told lawmakers his company was asking for the regulation and the tax.
“We were able to negotiate a tax rate,” said Howard, referring to the 5 cent-per-milliliter tax on the liquid components that contain nicotine and are delivered via vapor to smokers. “The entire product is manufactured in the United States, including the tobacco.
“This a new concept for North Carolina, which we welcome.”
During floor debate on the bill, Howard said that a “new and different” product was going to be announced in North Carolina in coming days.
Reynolds American has been marketing and testing the VUSE e-cigarette product – which the company calls a “digital vapor cigarette” – in Colorado since early 2013. A company spokesman declined to answer any questions about new manufacturing facilities, but sent a press release inviting reporters to an event Friday morning at Reynolds’ Tobaccoville facility announcing “news related to economic development issues.”
According to the release, Gov. Pat McCrory will be in attendance.
An analysis by Wells Fargo last fall estimated the e-cigarette market in the U.S. at $2 billion this coming year, and it could be as much as $10 billion by 2017.
In their public marketing, Reynolds American has been bullish on VUSE.
“We can move from concept to commercialization so quickly … and that is built on the foundation that we have superior knowledge and understanding of adult tobacco consumers,” said Danny Herko, Reynolds American’s senior vice president of research and development, about the VUSE e-cigarette device in a video loaded to YouTube in September.
“Designed and assembled in the U.S.A. by tobacco experts,” a different Reynolds commercial touts. “We know what smokers want.”
During Tuesday’s debate on the bill, Fulghum pointed out that nicotine might be addictive, but “we do not have any indications that this is a cancer-causing product like cigarettes and other tobacco products.”
But research shows that nicotine is a potent neurological stimulant that easily crosses the blood-brain barrier. Consumption of nicotine has other effects besides being cancer-causing on the body, including increased blood pressure and heart rate.
And multiple studies have shown that while nicotine might not cause cancer, it likely contributes to faster tumor growth in people who have the disease.
Pam Seamans, executive director of the North Carolina Alliance for Health, said one problem is that the science and regulation on e-cigarettes has been slow to catch up to the industry and to consumer demand. The Food and Drug Administration only started taking comments on a “deeming rule” to regulate e-cigarettes as tobacco products late last month.
“Nicotine arguments can be made that they’re less harmful than traditional cigarettes, but we don’t have the answers to those questions,” she said. “We don’t have [the science] yet, which is why it’s difficult to assess an appropriate tax rate for e-cigarettes now.”
Several lawmakers, including Howard and Rep. Ruth Samuelson (R-Charlotte), noted that people who try to stop smoking also get nicotine through gums and patches. But Seamans pointed out that those are highly regulated by the FDA because they’re considered to be “drug-delivery devices.”
“There’s a difference between a drug product versus a tobacco product,” Seamans said. “The two have dramatically different manufacturing and quality-control thresholds in an effort to protect the public’s health.”
New and improved?
During debate on the bill Tuesday, Fulghum said that “most of the health advocates think this [amendment] is an improvement on the situation” in restoring the definition of e-cigarettes as tobacco products.
But advocates expressed more equivocal opinions.
“The health community really appreciates the effort of key House members to make sure that the e-cigs were defined as tobacco products, because that is, in fact, what they are,” Seamans said. “But the fact remains that the tax ultimately approved is extremely low – lower than the 45 cent rate we have on cigarettes and the rates on other products.”
Currently, tobacco products such as snuff, cigarillos and cigars carry a 12.5 percent excise tax in addition to sales taxes.
“We know from much evidence gathered by the CDC that the most effective way to deter youth from smoking is from an increase in the price,” Seamans said.
Statistics from the Centers for Disease Control and Prevention’s National Youth Tobacco Survey found that e-cigarette use doubled in middle and high school students between 2011 and 2012.
The bill passed its third vote on the House floor Wednesday 84-29. Now, it heads to the Senate.
This story has been updated to reflect the final House vote.