Tobacco tax adjustment hits assembly agenda

On Feb 21, 2024

FAIRBANKS, Alaska (KTVF) – A proposed tobacco tax adjustment will head to the Fairbanks North Star Borough (FNSB) assembly chambers Thursday evening for its introduction.

Sponsored by Assemblymember Scott Crass, the ordinance would amend the borough’s existing tobacco tax code in two key ways.

The first would widen the umbrella of the tax by adding certain vape products to the code, including liquids intended to be vaporized to deliver nicotine to a user and electronic smoking devices that are not sold empty — or more colloquially, vape juices and disposable vape options.

The second change would up the current 8% tobacco excise tax to 20% of a wholesale price.

“That’s still a very low number compared to other municipalities in Alaska,” Crass said in a Wednesday phone interview, adding, “I don’t think it will be an undue burden on smokers.”

That percentage is levied on the person or business entity bringing a qualifying product into the borough, not the consumer, though part of the increased costs could get passed down to those purchasing the products from shops in the borough. Anchorage taxes such products at 55% of their wholesale prices.

The ordinance reasons traditional tobacco products pose established health problems for humans and that vapes share some of those concerns, while also attracting young people.

A 2019 advisory from the surgeon general determined 1 in 5 high schoolers and 1 in 20 middle schoolers used e-cigarettes, a term often interchanged with “vape.”

The federal minimum age to buy such a product is 21; in Alaska, state law sets the age at 19. The advisory estimated 3.6 million underage people used E-cigarettes as of 2018.

The FNSB measure also says the World Health Organization (WHO) has shown increasing tobacco taxes decreases usage, tacking a possible public health benefit onto the legislative action.

A July 2021 WHO report states, on average, when prices for tobacco products go up by 10%, consumption falls 4% in high-income countries, such as the United States.

“Approximately half of this reduction is due to tobacco users quitting, with the other half the result of existing users smoking less,” the report reads.

But the ordinance could face some pushback from affected business owners in the community, and in a brief interview Wednesday, Ice Fog Vapor Owner Alex McDonald weighed in.

“It’s pretty far overreaching,” he said.

“If the goal is to reduce harm from tobacco-related illness or smoking-related illness, they shouldn’t be taxing the products that people are using to get off the number one leading cause of preventable death in this country,” he added.

The ordinance would exempt products the U.S. Food and Drug Administration has approved for tobacco use cessation or harm reduction from the tax, but McDonald mentioned ongoing federal court cases requiring the FDA to reassess certain vape-related products could transfer additional items into that classification.

“A lot of the products are likely to be approved for the market,” he said. If the FDA does determine those products meet approval requirements for harm reduction, they would no longer be subject to the tax adjustments as proposed.

On the borough’s end, the method stands to change up the borough’s sources for bringing in funds, if only marginally.

“This would diversify revenue and put downward pressure on property taxes,” Crass said.

In FY23, the borough raised $1.4 million through its tobacco tax revenues, about 1.1% of its overall tax revenues, according to the most recent comprehensive financial report. As written, the adjustments called for in the ordinance would more than double that revenue.

In October, the City of Fairbanks passed a similar ordinance, and it took effect on Jan. 1, 2024. The city ordinance also raised an existing 8% tobacco excise tax to 20% and put vape-related products under the purview of the tax.

The fiscal note for the City of Fairbanks’ iteration projected the change to increase tobacco tax revenues by $1.5 million, and the city opted to reduce property tax revenues by that same amount.

Assuming the borough measure advances from Thursday’s meeting, it will first pass through the finance committee on March 7 before hitting the assembly floor for public hearing on March 14. The new ordinance, if passed, would go into effect June 30, 2024, aligning proposed changes with FNSB’s new fiscal year.