E-cigs Fire Up New Tax, Regulatory Melee

Illinois, Chicago and Cook County suburbs are leaders in a nationwide charge to govern growing industry while Big Tobacco and small biz fight back, reveals a BGA Rescuing Illinois report.

Alex Sistowicz started smoking as a sophomore in high school and says he got used to “waking up having to cough up a lung, all this nasty stuff, and my room always had that sooty ash smell.”

Two years ago he switched to “vaping” – inhaling nicotine-laced flavored vapor from a battery-powered device. Simple ones are known as e-cigarettes; more complicated ones may be called vaping “mods” (for modular) or other names.

“It’s like night and day,” said Sistowicz, 22, a sales associate at the Lakeview shop Smoque, which specializes in selling vaping devices and custom flavored liquids for them. “Now I’m not coughing and my room just smells like candles.”

Use of e-cigarettes and vaping products that deliver nicotine without combustion are becoming a nationwide phenomenon, with a June Reuters/Ipsos poll showing that 10 percent of Americans now “vape.” That’s a four-fold increase from government estimates in 2013, Reuters noted.

In recent years, the number of dedicated “vape” shops has zoomed from zero to an industry estimate of 15,000 nationwide; and e-cigarettes and other products are also sold in over 100,000 convenience stores and other retail outlets, racking up over $3 billion in 2015 sales.

State and local lawmakers are taking notice, a BGA Rescuing Illinois investigation finds. In fact, Chicago, a growing number of Cook County suburbs and the state of Illinois are among the country’s most aggressive players when it comes to regulating and taxing e-cigarettes and related products.

Often, these governments go after them as if they were traditional tobacco brands.

Such forcefulness is getting pushback from e-cigarette marketers, including some international cigarette behemoths, who promote their products as a healthy alternative to traditional smoking.

 “Given that it’s a really rapidly evolving and rapidly growing market, whatever governments do now will have a big impact,” said Frank Chaloupka, an economist and principal investigator of Tobacconomics, a University of Illinois Chicago Health Policy Center project that uses economics to inform policy meant to reduce tobacco use.  

Smoking alternative? 

The devices that users and sellers most commonly refer to as e-cigarettes are metal tubes mimicking the size and shape of regular cigarettes, with liquid enclosed in a pre-filled cartridge. The more elaborate “vaping mods” allow users to customize features and refill with liquids purchased in small bottles from “vape shops.”

Regulators typically treat the different types similarly and often use the term “e-cigarettes” across the board.

The Reuters poll found that 70 percent of current users started using e-cigarettes or vaping just in the past year, and about three quarters of them also smoke cigarettes.

E-cigarette and vaping proponents tout the idea that smokers – like Sistowicz – use e-cigarettes and vaping to quit or reduce regular smoking. But there has been little scientific evidence backing this claim, and a recent report by an independent advisory task force to the U.S. government found no evidence that these products help people quit smoking.

Jacob McConnico, spokesman for R.J. Reynolds Vapor Company, which makes the industry-leading VUSE e-cigarette, said, “We do not make any cessation claims with the product. We have seen high rates of trial of vapor products by adult tobacco consumers, but we have not seen high rates of switching.”

 A 2014 study in Oxford Journals showed that a third of current e-cigarette users had not been smokers. This and other studies found that young people are most likely to use e-cigarettes, with the U.S. Centers for Disease Control and Prevention (CDC) reporting that use by high school students tripled 13 percent from 2013 to 2014.

 (A study by Illinois Institute of Technology professors found that young people’s Twitter posts about e-cigarettes increased five-fold between 2012 and 2013, and that Tweets about using e-cigarettes to quit smoking peaked in January.)

Regulations, revenues

Already, Chicago, Cook County municipalities and Illinois have imposed some of the strictest regulation and industry taxes around.

Chicago includes e-cigarettes and vaping in its clean air ordinance, meaning that the products cannot be used in public buildings including restaurants and bars, with just a few exceptions for tobacco shops and theater performances.

Moreover, Chicago passed a tax on the products as part of the 2016 budget, levying 80 cents per e-cigarette and 55 cents per milliliter of fluid used to refill devices. The tax is expected to raise at least $1 million per year, a small sliver of the $755 million in new taxes added to the budget.

Cook County’s recently passed budget also added a tax of 20 cents per milliliter on the refill fluid.

And in 2013 Illinois banned the sale of e-cigarettes and vaping products to minors effective January 2014.

Lead sponsor state Rep. Kathleen Willis (D-Addison) said she plans to introduce a bill that would fix what she described as a “small loophole” in that law, by prohibiting minors from possessing the products.

Another bill co-sponsored by Willis that took effect in January 2015 mandates e-cigarettes and refillable liquid be sold in special childproof packaging.

Willis also plans to reintroduce a bill that stalled in the legislature this year, which would add vaping products and e-cigarettes to the existing Smoke Free Illinois Act, banning them in almost all public places including schools, businesses, sports arenas, restaurants and bars.

Already, e-cigarettes are banned on the campuses of Illinois state colleges and universities, including in parking lots and on the grounds.

Willis said lawmakers have also discussed proposing a state tax on the products, and a bill could be introduced this session. Only a few states including Minnesota and North Carolina currently have excise taxes on e-cigarettes, though various other states have proposed them.

At least seven states have laws banning e-cigarettes in workplaces, restaurants and bars and at least 16 more states ban them in certain state institutions, including colleges, prisons and state fairs, according to the American Non-Smokers’ Rights Foundation, a major national lobbying group that fights against smoking and secondhand smoke.   

Along with Chicago, nine other municipalities --Wilmette, Evanston, Oak Park, Skokie, Schaumburg, Naperville, Elk Grove Village, DeKalb and Deerfield -- ban e-cigarettes in workplaces, restaurants and bars, according to the foundation. And at least 34 states restrict sales of the products to youth.

State, county and municipal action has so far been the way to address the burgeoning industry, since the Food and Drug Administration (FDA) has not yet implemented rules or officially designated e-cigarettes and vaping implements as tobacco products. 

In October the FDA sent proposed rules on e-cigarettes to the White House Office of Management and Budget for review, which is supposed to happen within 90 days. Willis said state legislators had intended to wait for FDA guidance before adding e-cigarettes to the state smoke free law.

“But we could be waiting forever, ” she said.

“We’re trying to listen to everybody, and make some compromises as to where we’d actually go with it,” Willis added. “We’re trying to be sensitive to veterans homes that do use vaping devices for their veterans with nicotine addictions.

“We’re trying to take everyone’s thoughts and considerations into account but we’re finding a lot of towns coming up with their own bans on indoor vaping so it’s time to do something statewide,” she said.

Health concerns

Many health experts say e-cigarettes and vaping pose lower health risks than traditional cigarettes where tobacco and additives are burned and inhaled. A widely cited study concluded that e-cigarettes are 95 percent less harmful than traditional cigarettes.

However, e-cigarettes and vaping are hardly risk-free. Experts say more research is needed, and there is mounting evidence that vaping and e-cigarettes expose users to harmful chemicals.

The vapor is known to contain carcinogens and is likely to have carcinogenic and other effects on the respiratory system, according to various studies cited in a white paper by the Respiratory Health Association, a century-old Chicago-based advocacy and research group.  A study released by the Penn State College of Medicine on Dec. 2 found that the vapor might unleash damaging free radical molecules in the body.

The chemicals used for flavorings may also pose a risk when inhaled, even if they have been deemed safe as food additives. And second-hand smoke from e-cigarettes could be harmful, according to a study by the North Carolina-based public-private research institution RTI International.  

Calls to poison control centers related to e-cigarettes have increased significantly since 2010, with nausea, vomiting and eye irritation being the main effects, according to the CDC.  

The health effects are especially worrisome since youth have been the most enthusiastic users.

Critics complain that the products are blatantly marketed to young people, with catchy packaging and flavors including chocolate, cherry, cotton candy and bubble gum.

They fear that youth who don’t smoke are being introduced to these products, then becoming addicted to nicotine or initiated into the ritual of inhaling it and then moving on to traditional cigarettes.

“We’ve made great strides in terms of cutting tobacco use, especially youth cigarette use, especially here in Chicago where we’re at record lows,” said Matt Maloney, director of health policy for the Respiratory Health Association. “I’d hate to see the cycle of addiction starting up again because of this relatively new product.”

Recently, Chicago launched a social media educational campaign to reduce and prevent youth vaping.

Deterrent Vs. Nanny State

First Ward Ald. Joe “Proco” Moreno, who took the lead pushing for the tax in the Chicago budget, noted “there is some evidence that folks can use this to wean themselves off traditional cigarettes.

“We thought about that very hard in terms of the tax,” he continued. “But youth are gravitating toward them, we don’t want this to be the new norm. One weapon we have against this is taxes.”

Chaloupka, the UIC economist, said research shows that strategically structured taxes can be used to encourage vaping and e-cigarettes as an alternative to combustible tobacco, while also discouraging new users.

Raising taxes on traditional cigarettes, while also imposing a tax on e-cigarettes, could be the best approach, he contends.

The idea is that if e-cigarette taxes are high enough, non-smokers won’t pick them up. And if taxes on regular cigarettes are even higher than e-cigarettes, than those smokers might be motivated to switch to e-cigarettes.

 “There is this real battle going on between people who see these as a promising opportunity for popular health versus people who see them as the next coming of regular cigarettes,” said Chaloupka. “Finding the right balance going forward will be challenging.”

Bryant Jackson-Green, a policy analyst for the free-market Illinois Policy Institute, testified against the products’ inclusion in the city’s clean air rule and also opposes taxes on them.

 He thinks that restaurant and building owners should be able to decide for themselves whether to allow e-cigarettes and vaping in their establishment. He also sees a tax linked to such health concerns as a weak justification for trying to address budget gaps.

“It’s a nanny state, treating adults like children, and it’s not even much of a revenue-raiser,” Jackson-Green said. “Plus we’re bordered by Indiana and Missouri that have a lot lower cigarette taxes than Illinois. There’s reason to think if we raise that tax too high, they can go to Indiana instead. People would still be using it and even gains you are hoping to get from tax revenue wouldn’t be met.”

Big Tobacco is also lining up against e-cigarette taxes.

“While no tobacco product is free of health risks, vapor products are a noncombustible alternative to traditional cigarettes,” said McConnico of R.J. Reynolds, based in Winston-Salem, N.C. “A high tax could discourage smokers from switching to vapor products and could put states at a distinct disadvantage to surrounding states that don’t currently tax vapor products.

smoking e cigs

“We think common sense approaches to issues like these will produce the best outcomes that can prevent minors from using vapor products while not presenting hurdles for adult tobacco consumers who might consider switching to smoke-free alternative products.”

Follow the money

Major tobacco companies like R.J. Reynolds are among the biggest players in research, development and production of e-cigarettes, a fact that worries anti-smoking advocates.

“We’ve been very successful in deterring youth rates of cigarette use, and now they’re trying to find a new marketplace for addiction, finding a place for these products and then opening up that market to traditional products,” said Maloney.

“There’s no effort to hide that they’re targeting youth by having flavors like Gummi Bear and Cinnamon Toast Crunch.”

State Rep. Willis said she has not heard anything from tobacco companies related to her bills.

Meanwhile the industry has also been welcoming for independent and small businesses, including more than 100 vape shops that are listed in the Chicago area. Owners and employees of vape shops said they are outraged at the city taxes and worried about serious impacts on their business.

Steve Lesz is sales manager and director of production innovation at Haze Vaporizers, a national company based in Georgia. He described e-cigarettes as “pretty basic and primitive technology” and predicted people will gravitate from them to vaping systems as a way to quit smoking or to enjoy the feeling of inhaling flavored vapor.

“There’s no denying that it’s a growth industry,” said Lesz, who visited Chicago this month to plug the industry to investors. “It’s still a relatively young market with big potential. A lot of eyes are on this industry.”

About the Author

Kari Lydersen

Kari Lydersen, contributor, specializing in covering government.