New Vape Tax Shatters Projections for Tax Revenue

Buried in the small print of the quarterly revenue forecast state economists released last week is an eye-popping number: revenues from a new tax on e-cigarettes and vaping products that deliver nicotine.

“Inhalant delivery [vaping] revenues, a new tax in 2021, continue to come in significantly above initial expectations,” the economists wrote. “Over the first year of the tax, actual collections have been three times as large as expected.”

Vaping is still pretty new in Oregon. It’s so new that prior to 2020, the state didn’t collect any taxes on it.

That changed with Measure 108 in 2020. That measure, referred by the Oregon Legislature, included a suite of new policies aimed at reducing the harmful effects of tobacco use—most notably a $2 tax increase on every pack of smokes. The measure, which passed 66% to 34%, also included a tax of 65% of the wholesale price of vaping products.

In October 2020, right before the general election, the Legislative Revenue Office prepared an estimate of how much the new vape tax would raise.

Its guess then? About $10 million a year.

But in 2021, the first full year of collections, the state took in about $30 million.

It’s not unusual for projected revenues from a new tax to be significantly low, especially if they deal with new products such as vapes or newly legal products such as recreational cannabis, which also significantly overperformed in the early years.

Lillie Manvel, executive director of Upstream Public Health, a nonprofit that advocated for Measure 108, says the new tax is a good thing because higher prices reduce consumption and revenues go in part to anti-smoking and -vaping education.

“Upstream is very much interested in the programs that the vape and tobacco taxes support,” Manvel says. “They are sound public health policy and are shown to reduce youth use of commercial tobacco products.”

LOTS OF PUFFING: Vape tax revenues are coming in at three times the predicted rate. (Source: Oregon Department of Revenue)