Indiana Passes a Vaping Tax Without Public Input

The Indiana budget bill being passed today will include a tax on vaping products that was negotiated by the state legislature and governor without any opportunity for public input or debate. The state house has already approved the bill by a vote of 96-2. The state senate will approve it later, and Governor Eric Holcomb will sign it into law.

The tax, which will take effect July 1, 2022, is split between wholesale and retail, with closed-system products like prefilled pods assessed 25 percent of the wholesale cost, and open-system products like bottled e-liquid being taxed at 15 percent of the retail price (a sales tax).

Legislators had debated various proposals for a vape tax, including an eight cent-per-milliliter e-liquid tax and a 10 percent sales tax. The state’s Chamber of Commerce criticized those proposals as being too low, and issued a press release demanding a tax that brings the cost of vaping into parity with smoking. The plan adopted by the legislature and governor comes close to doing that.

In another shift from earlier proposals, the budget will not increase the state’s low cigarette tax. The adult smoking rate in Indiana was 21.8 percent in 2017—more than 27 percent higher than the national average of 17.1. Indiana’s 99.5 cents-per-pack cigarette tax, which hasn’t been increased since 2007, is one of the lowest in the country.

State Senate President Pro Tem Rodric Bray said legislators decided to discard the cigarette tax increase because senators "want to make sure that it’s going to really move the needle on some of the health parameters that we really need to move as far as the health of Hoosiers go." It’s unclear what that means.

In many states, it is Democrats who push for laws that make vaping products harder to get, less attractive, and more expensive. But Indiana is completely controlled by elected Republicans, who occupy the governor’s office and have a 39-11 state senate majority and a 71-29 advantage in the state house. Indeed, it is Republican legislators who have pushed for the vape tax.

Likewise, the state’s influential Chamber of Commerce—typically a politically conservative organization that fights for local businesses—is hell bent on damaging or killing the state’s small vaping businesses. The Chamber cheered the tax, citing the “positive health impact” the tax would have.

The vaping product tax isn’t the first example of supposedly conservative Indiana officials passing laws that damage the independent vaping industry and discourage smokers from switching to a low-risk alternative.

In 2015, the Indiana legislature passed a bill (and then-governor Mike Pence signed it into law) that created a monopoly for a few e-liquid manufacturers who had connections with a former state legislator and a casino company. The whole corrupt mess wound up being investigated by the FBI and eventually exposed by a couple of enterprising Indianapolis reporters. In 2017, the legislature reversed the law—but many small businesses had already been forced to close or move to other states.