SB2691.DOC

SECTION 1. The legislature finds that tobacco use is the single most preventable cause of disease, disability, and death in the United States. Tobacco use continues to be a problem in Hawaii, causing approximately 1,400 deaths per year among adults. An estimated 21,000 children in Hawaii currently under the age of eighteen will ultimately die prematurely from smoking. Tobacco use poses a heavy burden on Hawaii's health care system and economy. Each year, smoking costs approximately $526,000,000 in direct health care expenditures and $387,300,000 in lost productivity in the State.

The legislature further finds that tobacco products are addictive and inherently dangerous, causing many different types of cancer, heart disease, and other serious illnesses. Hawaii has a substantial interest in reducing the number of individuals of all ages who use tobacco products, and a particular interest in protecting adolescents from tobacco dependence and the illnesses and premature death associated with tobacco use.

The legislature additionally finds that the use of electronic smoking devices is on the rise. According to the Centers for Disease Control and Prevention, more than 1,700,000 middle school and high school students tried electronic cigarettes in 2012. Electronic cigarettes are battery-operated products designed to deliver nicotine, flavor, and other chemicals to the user by turning chemicals including highly addictive nicotine into an aerosol that is inhaled by the user. Consumers may choose from varying strengths of e-liquid as well as liquids consisting of different flavors. The electronic cigarette industry, along with the production of e‑liquid, are growing rapidly, and toxicologists warn that e-liquids pose significant risks to public health, particularly to children.

The legislature also finds that taxes on e-liquid should be similar to the tax rates already imposed on cigarettes. E-liquid and tobacco products other than cigarettes are currently taxed at a lower rate than cigarettes, even though their use carries similar health risks. Research has shown that either a tax on cigarettes or cigarette price increases have the propensity to reduce the rate of smoking by adult and youth smokers. However, the legislature is concerned that as the price of cigarettes increases, smokers may be tempted to purchase less expensive products such as e-liquid.

Finally, the legislature concludes that there should not be a lower-priced tobacco alternative to cigarettes in Hawaii; therefore a similar tax rate for cigarettes and e-liquids that acts as a deterrent for all forms of tobacco and nicotine use is needed. Higher e-liquid prices will encourage users of electronic smoking devices to quit, sustain cessation, prevent youth initiation, and reduce consumption among those who continue to use.

The purpose of this Act is to:

(1) Impose an excise tax on disposable electronic smoking devices, reusable electronic smoking devices, and e-liquid sold by a wholesaler or dealer on and after January 1, 2017, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer; and

(2) Require any subsequent increase in the excise tax rate imposed on cigarettes or little cigars to trigger an automatic excise tax increase on e-liquid.

SECTION 2. Section 245-1, Hawaii Revised Statutes, is amended as follows:

1. By adding four new definitions to be appropriately inserted and to read:

""Disposable electronic smoking device" means an electronic smoking device that is designed or intended not to be reused or refilled.

"Electronic smoking device" means any electronic product that can be used to aerosolize and deliver nicotine to the person inhaling from the device, including but not limited to an electronic cigarette, electronic cigar, electronic cigarillo, electronic pipe, hookah pipe, or hookah pen, and any component of the device or related product, whether or not sold separately, including but not limited to atomizers, coils, drip tips, and tanks.

"E-liquid" means any liquid containing nicotine that is designed or intended to be used in a reusable electronic smoking device, whether or not packaged in a cartridge or other container.

"Reusable electronic smoking device" means an electronic smoking device that is designed or intended to be reused or refilled."

2. By amending the definition of "dealer" to read:

""Dealer" means any person coming into the possession of cigarettes [or], tobacco products, electronic smoking devices, or e-liquid, which have not been acquired from an authorized permit holder or licensee under this chapter, or any person rendering a distribution service who buys and maintains, at the person's place of business, a stock of cigarettes [or], tobacco products, electronic smoking devices, or e-liquid that have not been acquired from a licensee and who distributes or uses such cigarettes [or], tobacco products[.], electronic smoking devices, or e-liquid."

3. By amending the definition of "retailer" to read:

""Retailer" means an entity that engages in the practice of selling cigarettes [or], tobacco products, electronic smoking devices, or e-liquid to consumers and includes the owner of a cigarette [or], tobacco product, electronic smoking device, or e-liquid vending machine."

4. By amending the definition of "sale" or "sold" to read:

""Sale" or "sold" includes any delivery of cigarettes [or], tobacco products, electronic smoking devices, or e-liquid, whether cash is actually paid therefor or not."

5. By amending the definition of "wholesale price" to read:

""Wholesale price", in addition to any other meaning of the term, means in the case of a tax upon the use of tobacco products, electronic smoking devices, or e-liquid, or upon a sale not made at wholesale:

(1) If made by a person who during the month preceding the accrual of the tax made substantial sales to retailers of like tobacco products, electronic smoking devices, or e-liquid, the average price of the sales[,]; and

(2) If made by any other person, the average price of sales to retailers of like tobacco products, electronic smoking devices, or e-liquid made by other taxpayers in the same county during the month preceding the accrual of the tax."

6. By amending the definition of "wholesaler" to read:

""Wholesaler" means a person rendering a distribution service who buys and maintains, at the person's place of business, a stock of cigarettes [or], tobacco products, electronic smoking devices, or e-liquid that the person uses, possesses, or distributes only to retailers, or other wholesalers, or both."

SECTION 3. Section 245-3, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) Every wholesaler or dealer, in addition to any other taxes provided by law, shall pay for the privilege of conducting business and other activities in the State:

(1) An excise tax equal to 5.00 cents for each cigarette sold, used, or possessed by a wholesaler or dealer after June 30, 1998, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(2) An excise tax equal to 6.00 cents for each cigarette sold, used, or possessed by a wholesaler or dealer after September 30, 2002, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(3) An excise tax equal to 6.50 cents for each cigarette sold, used, or possessed by a wholesaler or dealer after June 30, 2003, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(4) An excise tax equal to 7.00 cents for each cigarette sold, used, or possessed by a wholesaler or dealer after June 30, 2004, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(5) An excise tax equal to 8.00 cents for each cigarette sold, used, or possessed by a wholesaler or dealer on and after September 30, 2006, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(6) An excise tax equal to 9.00 cents for each cigarette sold, used, or possessed by a wholesaler or dealer on and after September 30, 2007, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(7) An excise tax equal to 10.00 cents for each cigarette sold, used, or possessed by a wholesaler or dealer on and after September 30, 2008, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(8) An excise tax equal to 13.00 cents for each cigarette sold, used, or possessed by a wholesaler or dealer on and after July 1, 2009, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(9) An excise tax equal to 11.00 cents for each little cigar sold, used, or possessed by a wholesaler or dealer on and after October 1, 2009, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(10) An excise tax equal to 15.00 cents for each cigarette or little cigar sold, used, or possessed by a wholesaler or dealer on and after July 1, 2010, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(11) An excise tax equal to 16.00 cents for each cigarette or little cigar sold, used, or possessed by a wholesaler or dealer on and after July 1, 2011, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(12) An excise tax equal to seventy per cent of the wholesale price of each article or item of tobacco products, other than large cigars, sold by the wholesaler or dealer on and after September 30, 2009, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer; [~~and~~]

(13) An excise tax equal to fifty per cent of the wholesale price of each large cigar of any length, sold, used, or possessed by a wholesaler or dealer on and after September 30, 2009, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer[.];

(14) An excise tax equal to per cent of the wholesale price of each disposable electronic smoking device, sold, used, or possessed by a wholesaler or dealer on and after January 1, 2017, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer;

(15) An excise tax equal to cents per milliliter of e-liquid sold, used, or possessed by a wholesaler or dealer on and after January 1, 2017, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer; provided that:

(A) Liquids used with electronic smoking devices that do not contain nicotine are exempt from the excise tax established pursuant to this paragraph; and

(B) If the excise tax rate of 16.00 cents for each cigarette or little cigar increases on or after January 1, 2017, the excise tax rate equal to cents per milliliter of e-liquid pursuant to this paragraph shall automatically increase by the same percentage as the increase of the excise tax rate per cigarette or little cigar; and

(16) An excise tax equal to per cent of the wholesale price of each reusable electronic smoking device, other than e-liquid, sold, used, or possessed by a wholesaler or dealer on and after January 1, 2017, whether or not sold at wholesale, or if not sold then at the same rate upon the use by the wholesaler or dealer.

Where the tax imposed has been paid on cigarettes, little cigars, [or] tobacco products, electronic smoking devices, or e-liquid that thereafter become the subject of a casualty loss deduction allowable under chapter 235, the tax paid shall be refunded or credited to the account of the wholesaler or dealer. The tax shall be applied to cigarettes through the use of stamps."

SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 5. This Act shall take effect upon approval.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	2691
TWENTY-EIGHTH LEGISLATURE, 2016
STATE OF HAWAII