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The Tax Foundation is the nation’s leading independent tax policy nonprofit. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and global levels. For over 80 years, our goal has remained the same: to improve lives through tax policies that lead to greater economic growth and opportunity.

Today’s map looks at the design of excise taxes for vaping and tobacco alternatives, which is important in the pursuit of harm reduction from smoking. Higher vapor taxes on products such as E-cigarettes could encourage vapors to go back to smoking cigarettes and will discourage cigarette smokers from switching to vaping products. 

Since vaping entered the market in the mid-2000s, it has grown into a well-established product category and a viable alternative to smokers. So far, 30 states and the District of Columbia have imposed an excise tax on vaping products. While vapor taxes may represent an untapped revenue source for states that have yet to impose an excise tax, substantial revenue is unlikely in the short term.

Vapor taxing methods vary. Authorities tax based on price (ad valorem), volume (specific), or with a bifurcated system that has different rates for open and closed tank systems.

Of those that tax wholesale values, Minnesota tops the list with a 95 percent rate and Vermont follows closely at 92 percent. Delaware, Kansas, Louisiana, North Carolina, and Wisconsin all share the lowest per milliliter rate ($0.05).

The following map shows where state vapor taxes stand as of July 1, 2022. Among the highlights in changes:

Vapor products can deliver nicotine, the addictive component of cigarettes, without the combustion and inhalation of tar that is a part of smoking cigarettes. While more research relating to the potential harm-reduction qualities of vapor products is needed, for now, the consensus is that vapor products are less harmful than traditional combustible tobacco products. Public Health England, an agency of the English Ministry for Health, concludes that vapor products are 95 percent less harmful than cigarettes.

Given this difference in harm levels, it is important to understand the concept of harm reduction and its relevance for vapor products taxes. Vapor products—even if unhealthy in their own right—are highly attractive as an alternative to smoking. After all, one main reason smokers have a hard time quitting is the addictive nature of nicotine. Harm reduction is the concept that it is more practical to reduce the harm associated with the use of certain goods rather than attempting to eliminate it completely through bans or punitive levels of taxation.

Protecting access to harm-reducing vapor products is intertwined with tax policy because nicotine-containing products are economic substitutes. Low tax rates on vaping encourage consumers to switch from combustibles. High excise taxes on harm-reducing vapor products risk harming public health by pushing vapers back to smoking. A recent publication found that 32,400 smokers in Minnesota were deterred from quitting cigarettes after the state implemented a 95 percent excise tax on vapor products.

If the policy goal of taxing cigarettes is to encourage cessation, vapor taxation must be considered a part of that policy design. For more discussion on the ideal design for vapor taxes and other excise taxes, check out our recent report.

Note: This post has been updated on July 6, 2022 to include Maryland’s tax on vapor products.

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The tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates.

An excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections.

The Tax Foundation is the nation’s leading independent tax policy nonprofit. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and global levels. For over 80 years, our goal has remained the same: to improve lives through tax policies that lead to greater economic growth and opportunity.

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