New Jersey lawmakers eye hiking nicotine taxes to boost revenue

Some state budget provisions are beginning to come into relief days ahead of a deadline to pass a spending bill before the new fiscal year begins on July 1.

Top-ranking legislators in the Senate introduced tax proposals pitched as part of Murphy’s budget plan that would raise levies on cigarettes and the fluid used in vaping devices.

“Hopefully, some of this revenue will be applied to smoking cessation programs,” Sen. Joe Vitale (D-Middlesex), the chamber’s health chairman and a sponsor of one of the bills, told the New Jersey Monitor.

A bill sponsored by Sen. Paul Sarlo (D-Bergen), the chamber’s budget chair, would nudge New Jersey’s cigarette per-pack tax up from $2.70 to $3, while Vitale’s bill would triple tax rates on electronic cigarette fluid sales at both wholesale and retail levels.

Gov. Phil Murphy pitched both proposals in the budget plan he unveiled in February. They were among a raft of proposed tax increases meant to generate $1.2 billion in additional revenue as New Jersey faces tightening fiscal conditions, a deficit, and uncertainty over the future of its federal funding.

In February budget documents, administration officials urged lawmakers to boost cigarette tax revenue as smoking wanes and is supplanted by newer nicotine delivery mechanisms.

Absent the increase, the tax on cigarettes was expected to generate $365.3 million in the coming fiscal year, down from an estimated $374 million in the current one. With the higher rate, that tax would generate $406.3 million, according to treasury documents.

The increase would allow some money from New Jersey’s cigarette tax, about $10.7 million, to flow into the state’s general fund.

The first $391.5 million in cigarette tax revenue is dedicated to an off-budget fund that pays for smoking cessation and other health care programs, and some additional funds must be used to pay down bonds issued against cigarette tax revenue.

Opponents warned raising the tax would harm convenience stores, gas stations, and other retailers that carry tobacco products.

The changes would push smokers to cross state lines to purchase cigarettes in Pennsylvania, which charges a $2.60-per-pack cigarette tax, said Eric Blomgren, executive director of the New Jersey Gasoline, C-Store, and Automotive Association.

“For each individual that does so, there are two losses. One is to the retailer who not only lost that sale, but also the cup of coffee, snack, or other purchase that customer would have also bought,” he said. “The other is to the state, which in an effort to squeeze $3.00 from a pack instead loses the $2.70 it was already getting, plus another roughly 77 cents in lost sales tax.”

Excise taxes like those that New Jersey levies on nicotine products have dual roles. In addition to the revenue they generate, they are meant to deter taxpayers from certain activities, like smoking and drinking.

Vitale, a longtime supporter of higher excise taxes on nicotine products, cautioned New Jersey might see limited success on that second prong.

“I think that the revenue’s required, and it serves, at some level, as a disincentive to smoke, but the actual data doesn’t support it as much as I thought it did,” Vitale said. “The people who have an addiction have an addiction. Whether it’s $2.70 a pack or $3 a pack, they’re going to continue to smoke unless there’s an alternative for them.” 

The nicotine taxes are among a range of revenue raisers Murphy has proposed for the next fiscal year. Legislators, including Sarlo, have stated opposition to some others, including a proposal to subject recreational activities like laser tag to the state’s sales tax.

Under Vitale’s proposal, the state’s tax on e-cigarette cartridges would rise from 10 cents to 30 cents per milliliter. That increase would add about 56 cents to a four-pack of Juul cartridges and roughly $1.44 to a four-pack of Vuse Alto cartridges.

New Jersey’s tax on e-cigarette cartridges can be applied to wholesalers or retailers, depending on the flow of goods.

The bill would separately raise the tax rate on bottled vaping fluid to 30% of retail price, from 10%.

It would also require distributors and retailers to take inventory of their stock of vaping fluid, report it to the state, and pay the additional tax within a month of the bill becoming law.

Blomgren argued the state should enforce its existing ban on flavored vaping products before seeking to boost revenue by raising tax rates.

Last year, Attorney General Matt Platkin fined 19 stores for selling illegal flavored vapes. In January, he sent warnings to nearly 11,000 businesses warning of a ban that had by then been on the books for five years.

“It is doubtful that many of the people selling an illegal product are paying the state the proper tax on vape products. In fact, one of our members recently purchased an illegal flavored product from a competitor, and found they did not even charge them sales tax,” Blomgren said.

Murphy and lawmakers must pass and sign an annual spending bill before July 1 to avert a government shutdown.

An earlier version of this story quoted Sen. Vitale saying lawmakers are mulling a tax hike on nicotine pouches. A Senate Democrats spokesman said that is not under consideration.