SB2654 SD2

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 one thousand four hundred deaths per year among adults. An estimated twenty-one thousand 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 electronic smoking devices, also known as e-cigarettes, are battery-operated products designed to turn highly addictive nicotine, flavor, and other chemicals into an aerosol that is inhaled by the user. Consumers may choose from varying strengths of e-liquid nicotine as well as liquids consisting of different flavors. A 2015 study of more than fifty-eight million e-cigarettes found that ninety-nine per cent contained nicotine, whether or not they were labeled as "zero nicotine" or "nicotine-free". The legislature is concerned that labeling alone is not an effective measure of nicotine content.

The electronic smoking device industry, including the production of e‑liquids, is growing rapidly. According to a 2016 report from the United States Surgeon General, e-cigarette use amongst the nation's youth and young adults has become a major public health concern. The Surgeon General's report noted that e-cigarette use has increased considerably in recent years, growing an astounding nine hundred per cent among high school students from 2011 to 2015. More than three million middle school and high school students were users of e-cigarettes in 2015. Furthermore, e‑cigarettes are now the most commonly used tobacco product among youth, surpassing conventional cigarettes in 2014. E‑cigarette use among youth and young adults is also strongly associated with the use of other tobacco products, including combustible tobacco products. Toxicologists have also warned that e-liquids pose significant risks to public health, particularly to children. According to the Surgeon General's report, if the contents of refill cartridges or bottles are consumed, ingestion of e-liquids containing nicotine can cause acute toxicity and possibly death. The Surgeon General's report also found that there are numerous policies and practices that can be implemented at the state and local levels to address electronic smoking device use among youth and young adults, including preventing access to e‑cigarettes by youth, significant increases in tax and price of e-cigarettes, retail licensure, and regulation of e-cigarette marketing.

The legislature finds that the rapid growth of the electronic smoking device industry, including retail businesses selling electronic smoking devices or e-liquids, necessitates further regulations to protect consumers, such as requiring retailers of e-liquids to obtain a retail tobacco permit.

The legislature notes that the federal Food and Drug Administration recently finalized a rule that expands its regulatory authority to all tobacco products, including electronic smoking devices, cigars, and hookah and pipe tobacco. However, the legislature also notes that there is currently no state tobacco tax attached to e-liquid, even though electronic smoking devices are now regulated as tobacco products. The legislature finds that states such as Indiana, Pennsylvania, and West Virginia tax e-liquids that may or may not contain nicotine. Furthermore, 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 increasing cigarette prices, such as through cigarette taxes, tends 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 purchase less expensive tobacco products, such as electronic smoking devices or e‑liquids.

Finally, the legislature concludes that there needs to be a tax on e-liquids and taxing these products as other tobacco products is the most equitable way to do so. Imposing a tax on e-liquids will also encourage users of e-liquids to quit, sustain cessation, prevent youth initiation, and reduce consumption among those who continue to use them.

The purpose of this Act is to:

(1) Make unlawful the shipment of tobacco products to anyone other than a licensee;

(2) Make unlawful the transport of tobacco products ordered through remote sale to anyone other than a licensee;

(3) Include e-liquid within the definition of "tobacco products", as used in the cigarette tax and tobacco tax law, thereby:

(A) Subjecting e-liquid to the excise tax on tobacco products;

(B) Requiring retailers of e-liquid to obtain a retail tobacco permit to sell, possess, keep, acquire, distribute, or transport e-liquid;

(C) Prohibiting persons from engaging in the business of wholesaling or dealing e-liquid without first obtaining a license from the department of taxation; and

(D) Applying other requirements of chapter 245, Hawaii Revised Statutes;

(4) Increase the license fee for persons engaged as a wholesaler or dealer of cigarettes and tobacco products; and

(5) Increase the retail tobacco permit fee for retailers engaged in the retail sale of cigarettes and tobacco products.

SECTION 2. Chapter 245, Hawaii Revised Statutes, is amended by adding two new sections to be appropriately designated and to read as follows:

"§245- Unlawful shipment of tobacco products; penalty; reports; liability for unpaid taxes. (a) A person or entity commits the offense of unlawful shipment of tobacco products if the person or entity is engaged in the business of selling tobacco products and ships tobacco products or causes tobacco products to be shipped to a person or entity in this State that is not:

(1) A licensee under this chapter; or

(2) A person or entity transporting tobacco products, as defined in section 245-1, under federal internal revenue bond or customs control that are non-tax-paid under title 26 of the United States Code, or an operator of a customs bonded warehouse pursuant to title 19 United States Code section 1311 or 1555.

(b) This section shall not apply to the shipment of tobacco products if any of the following conditions are met:

(1) The tobacco products are exempt from taxes as provided by section 245-3(b);

(2) The person or entity engaged in the business of selling, advertising, or offering tobacco products for sale and transfer or shipment includes on the outside of the shipping container an externally visible and easily legible notice located on the same side of the shipping container as the address to which the shipping container is delivered stating as follows:

"HAWAII LAW PROHIBITS THE SALE OF CIGARETTES OR TOBACCO PRODUCTS TO INDIVIDUALS UNDER TWENTY-ONE YEARS OF AGE AND REQUIRES THE PAYMENT OF ALL APPLICABLE TAXES. YOU ARE LEGALLY RESPONSIBLE FOR ALL APPLICABLE UNPAID TAXES ON THESE CIGARETTES AND TOBACCO PRODUCTS."; or

(3) All applicable Hawaii taxes on the tobacco products are paid in accordance with the requirements of this section.

(d) For purposes of this section, "licensee" means a person or entity that is on a list of authorized licensees published by the department.

(e) Notwithstanding the existence of other remedies at law, any person or entity that purchases, uses, controls, or possesses any tobacco products for which the applicable taxes imposed under title 14 have not been paid, shall be liable for the applicable taxes, plus any penalty and interest as provided for by law.

§245- Unlawful transport of tobacco products ordered through remote sale; penalty. (a) A person or entity commits the offense of unlawful transport of tobacco products if the person or entity is engaged in the business of selling or providing tobacco products and ships or transports or causes to be shipped or transported, any tobacco product ordered or purchased through a remote sale to anyone in the State other than a licensed wholesaler or dealer.

(b) Any manufacturer, wholesaler, dealer, retailer, or other person or entity who knowingly violates this section shall be guilty of a misdemeanor. Each shipment that violates or fails to comply with this section shall be a separate and distinct violation.

(c) In addition to, or in lieu of, any other civil or criminal remedy provided by law, a person or entity who has violated this section is subject to a civil penalty of up to $5,000 for each violation. The attorney general may initiate a civil action seeking recovery of the penalties.

(d) For the purposes of this section:

"Internet sale" means any internet website or electronically networked means that solicits or sells cigarettes or tobacco products, including electronic smoking devices, regardless of whether cash is actually paid for the product.

"Mail order" means any means of soliciting cigarettes or tobacco products, including electronic smoking devices, that are set forth in a catalog or other printed solicitation of a business that is generally available to the public.

"Remote sale" means a sale that is conducted by mail order, telephone, computer, internet sale, or any means other than a physical storefront."

SECTION 3. Section 245-1, Hawaii Revised Statutes, is amended as follows:

1. By adding a new definition to be appropriately inserted and to read:

""E-liquid" means any liquid or like substance which may or may not contain nicotine that is designed or intended to be used in an electronic smoking device, as defined in section 328J-1, whether or not packaged in a cartridge or other container. E-liquid shall not include prescription drugs; medical cannabis or manufactured cannabis products; or medical devices used to inhale or ingest prescription drugs, including devices sold at a licensed medical cannabis dispensary."

2. By amending the definition of "tobacco products" to read:

""Tobacco products" means tobacco in any form, other than cigarettes or little cigars, that is prepared or intended for consumption or for personal use by humans, including large cigars and any substitutes thereof other than cigarettes that bear the semblance thereof, snuff, chewing or smokeless tobacco, [~~and~~] smoking or pipe tobacco[.], and e-liquid."

SECTION 4. Section 245-2, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) The license shall be issued by the department upon application therefor, in a form and manner as shall be required by rule of the department, and the payment of a fee of [~~$2.50,~~] $250, and shall be renewable annually on July 1 for the twelve months ending the succeeding June 30."

SECTION 5. Section 245-2.5, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

"(c) The retail tobacco permit shall be issued by the department upon application by the retailer in the form and manner prescribed by the department, and the payment of a fee of [~~$20.~~] $50. Permits shall be valid for one year, from December 1 to November 30, and renewable annually. Whenever a retail tobacco permit is defaced, destroyed, or lost, or the permittee relocates the permittee's business, the department may issue a duplicate retail tobacco permit to the permittee for a fee of $5 per copy."

SECTION 6. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 7. This Act shall take effect on July 1, 2050.

THE SENATE	S.B. NO.	2654
TWENTY-NINTH LEGISLATURE, 2018		S.D. 2
STATE OF HAWAII