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Capitol View®
Catharine Richert

Critics: House e-cigarette tax would crush MN business

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For Minnesota's growing e-cigarette industry, the House omnibus tax bill looks like a bust.

Buried in the bill is a provision that would change the way e-cigarettes are taxed. Right now, disposable e-cigarettes or vapor used in reusable e-cigarettes is taxed at 95 percent of the wholesale price of tobacco products.

The tax bill would change the rules to impose a 30 cent tax on every milliliter of vaping solution.

Vaping retailers and manufacturers say that amounts to an 800 percent tax increase.

"This will crush the vaping industry in Minnesota," said Tim Koester President of the Independent Vapor Retailers of Minnesota. “I suspect a majority of Minnesota vape businesses will not be able to operate much longer if this new tax is imposed.”

Some retailers may see a tax cut if they've been selling small amounts of vaping liquid and if the current wholesale prices of tobacco is low.

In fact, the tax change amounts to a more than $9 million cut in state revenue because the Department of Revenue estimates that 65 percent of e-cigarettes sold now are the disposable variety - meaning they contain less vaping liquid.

Meanwhile, the House tax bill is a boon for the cigarette industry.

It stops automatic annual increases in the cigarette tax adopted by the Legislature in 2013, which the Department of Revenue estimates will cost the state $39 million by the time the provision is fully implemented.

And it effectively reduces the price of cigarette stamps cigarette distributors buy from the Department of Revenue and are required to affix to their products. The change will amount to a $4 million hit to the state's general fund for the biennium.