Under the Dome

May 27, 2014

Opposition forms to NC’s e-cigarette tax proposal

A cheerleader for the state legislature’s tax overhaul a year ago is now aligned against N.C. Republicans pushing for a new tax on e-cigarettes.

A cheerleader for the state legislature’s tax overhaul a year ago is now aligned against N.C. Republicans pushing for a new tax on e-cigarettes.

Americans for Tax Reform sent a letter to state lawmakers Friday saying it opposes the 5-cent-per-milliliter tax on vapor products just days after the proposal won final approval in the House as part of a larger tax bill.

The Senate Finance Committee will consider HB 1050 on Tuesday evening.

The stance marks a break for the organization, led by President Grover Norquist, which touted North Carolina a year ago for pushing a tax overhaul measure that slashed income taxes. Norquist visited the statehouse to thank lawmakers for their efforts.

“Not only will this tax increase hurt North Carolina small businesses, imposing a tax hike on the products makes little sense from a health perspective,” wrote Norquist, the group’s president. “The portion of the bills dealing with vapor products should be stripped from the omnibus tax law changes and considered as stand-alone bills.”

The Smoke-Free Alternatives Trade Association is likewise speaking out, saying it would hurt more than 100 vapor businesses in North Carolina.

“Why rush to put in a tax that is not going to make a dent on anybody except the people that are building businesses,” said Cynthia Cabrera, the organization’s executive director.

A prominent player in the industry, the Winston-Salem based Reynolds American, is advocating for the tax, a more modest amount than the 45-cent levy on a pack of cigarettes. Republican leaders in the House approved the measure without taking public comment a week after it was put into the omnibus tax bill.

In an interview Tuesday, Cabrera said Reynolds didn’t represent the entire industry. She said the way the tax is written it will benefit the company’s products but not others that offer competing products and liquids used in the devices.

She also disputed a provision in the legislation labeling the e-cigs as tobacco products. “Why would you put a sin tax on a product that has absolutely not been shown to have the same harmful affects as combustible cigarettes,” she said.

Republican Sen. Bob Rucho, a Senate Finance Committee chairman, expressed support for the provision in an interview last week.

But ATR’s opposition may sway other Republican lawmakers, even if the lobbying organization deemed the provision doesn’t constitute a violation of its pledge not to increase taxes.

“Though these two companion bills are not violations of the Taxpayer Protection Pledge, they do take a step in the wrong direction,” the group said in a statement, without explaining its decision. A spokesman for the organization did not return a message seeking comment.

The tax is expected to bring in roughly $5 million in new revenue starting in fiscal year 2015-2016. The bill includes a provision to lessen the sales tax on mobile homes, a roughly $6 million tax break.

The Tax Foundation, another group that has supported the Republican legislative agenda in North Carolina, spoke favorably of the e-cigarette tax, saying it is better than Minnesota’s higher rate.

“Ideally, all cigarettes should only be taxed at the sales tax rate,” wrote Scott Drenkard, an economist at the Washington-based group. “But the North Carolina proposal is far better than the Minnesota tax, and should be the new standard against which other e-cigarette tax proposals are judged.”

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