Kentucky’s New Vape Taxes are some of the Highest in the Country
As legislators wrapped up the 2020 session this week, they passed multiple new taxes on vapor products in the final revenue package. Pegasus Institute has consistently opposed taxes on vape products for the wide ranging negative effects of any tax increase on these products, but the new $1.50 per cartridge tax puts Kentucky in a uniquely bad position.
To understand the impact of these taxes, we must first break down the ways in which the legislature decided to tax different vapor products. Vapor products are actually a broad range of different products, from the most popular JUUL, to refillable vapes, to e-cigarettes. In Kentucky, these products will now be classified as either “open” or “closed.” Open vapor products use refillable liquids in the same vape module. These products are often sold at local vape shops. Closed vapor products are the disposable pods, or cartridges, most often associated with JUUL, Blu, and Vibe. These products are typically sold at convenience stores. One cartridge from a these products typically contains about the same amount of nicotine as a pack of cigarettes.
The relative novelty of vape products has created tax structures that vary greatly from state to state. Some states have chosen to tax all vape products based on the liquid amount sold. For example, vapor products in Ohio face a $0.10/ml tax. So, for those who have a module that takes these refillable liquids, the consumer is taxed with each purchase of the liquid. This tax structure was initially proposed by Governor Andy Beshear in Kentucky.
Other states tax all vape products on either the wholesale or retail side. Pennsylvania taxes vapor products at 40% of wholesale while New York taxes at 20% of retail price. Washington, New Mexico, Connecticut, New Hampshire, New Jersey, and now Kentucky will be the only states with the open and closed vape taxing structures. Of the states with this structure, Kentucky will be 3x the highest state for taxing closed vaping products (New Mexico $0.50/cartridge). Kentucky will also be the highest in the nation for a per cartridge tax. This tax makes these products now more expensive than a pack of cigarettes. Our tax policy will now encourage adults to move away from a product that is 95% healthier.
Along with the $1.50/per cartridge, Kentucky will also place a 15% wholesale tax on all open products. While this is not the highest wholesale tax on vape products in the country, it is the highest for the states that regulate on an open versus closed structures. Again, New Mexico is the closest with a 12.5% wholesale tax on open products.
More importantly, of Kentucky’s neighbors, we will easily be the highest in the region. Indiana, Virginia, Tennessee, and Missouri have NO taxes on vape products. Of those neighboring states with vape taxes, West Virginia has a $0.075/ml tax, Ohio has a $0.10/ml tax, and Illinois has a 15% wholesale tax.
Our organization has pointed out several times before the negative impact of these taxes. Research has consistently shown that these high taxes will force adults back onto traditional cigarettes. That will be devastating for Kentucky’s public health. For the few who are not forced back onto cigarettes, they will almost certainly cross state lines to purchase their products, meaning Kentucky loses out on any possible tax benefits. A benefit that has been minimal in all other states. Closed vape products are by far the most popular, and for those thousands adults using them to quit traditional cigarettes - they may now think twice.