Critics warn Bentley’s proposed tobacco and e-cig tax hike could cost 2,000 jobs
MONTGOMERY, Ala. — As lawmakers consider ways to patch the General Fund budget’s $200+ million hole in the Special Legislative Session this summer, the option of increasing the tobacco tax has seemingly become the most palatable tax option. But according to Breathe Easier Alliance of Alabama, a broad expansion of taxes levied on tobacco and tobacco replacements could have devastating effects on an entire burgeoning industry.
Angi Stalnaker, spokesperson for the Breathe Easier Alliance of Alabama says the proposed tax increases could shutter hundreds of small businesses and cause up to 2,000 Alabamians to lose their jobs.
In a draft bill obtained by Yellowhammer, the tax per product would increase, and the government would set a minimum price on tobacco and tobacco replacement products. The law would also preclude retailers from conducting promotions or sales and would stop vapor patrons from sampling various flavors without buying an entire vial.
But perhaps most strikingly, the bill proposes to levy an entirely new tax on e-cigarettes and vaporizers that is disproportionate to the tax on an equivalent amount of cigarettes.
Electronic cigarettes and vaporizers are currently taxed at the normal sales tax rate. The $0.25 per milliliter tax would constitute a $3.50 tax for the equivalent of a pack of cigarettes. The current tax on a pack of cigarettes is only $0.40.
The governor’s office told Yellowhammer the tax will only apply to e-cigarettes that contain nicotine.
“It redefines what tobacco means in the statute. So, now e-cigarettes and vapors are defined as tobacco products even though they have zero tobacco in them,” Stalnaker told Yellowhammer. “This would be the same thing as passing a law on cars and making it apply to refrigerators… We’re not even sure it’s legal to redefine them that way.”
“You are telling local Alabama small business owners that they are now agents of the state and that they are forced to pass on any fees or taxes to the consumer,” she continued. “You are taking any competitive spirit away, you are making them work for the government against their will, and you are ensuring that the price of e-juice and e-cigarettes are passed on to the consumer.”
As none of Alabama’s neighboring states impose a tax on these products, the state could see its citizens who live in border counties simply drive across the state line to make their purchases.
Bentley spokesperson Jennifer Ardis told Yellowhammer the administration does not believe that is a concern.
Coupled with the increase in paperwork, business privilege taxes, and large increase in the price of their products, the Alliance fears the state’s hundreds of vapor and e-cigarette shops could soon become unprofitable and be driven out of business.
Because the bill has not been formally introduced, the Legislative Fiscal Office has not yet scored how much revenue the measure could bring to the General Fund. A similar bill introduced during the Regular Session was projected to bring $205 million, but with the inclusion of some new taxes that number could be even higher for the new bill. Much like the state’s existing revenue, it is heavily earmarked to go toward specific programs.
This bump in revenues may be short-lived, however, as multiple studies show that as the price of cigarettes, tobacco products, and tobacco replacements increased, sales have decreased—and revenue will decrease right along with it.
The Alabama House and Senate convened for the Special Session on July 13th, almost immediately adjourning until August 3rd. When the legislature returns they will have nine days to come to a compromise with the governor on the General Fund budget.
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— Elizabeth BeShears (@LizEBeesh) January 21, 2015