Imposing a tax on certain products containing nicotine or nonnicotine substances, creating the Iowa cancer research fund, and including effective date provisions

Description

Senate File 638 relates to regulation and taxation of alternative nicotine products and vapor products.

The Bill regulates nicotine analogs in the same manner as alternative nicotine products and modifies requirements for distributors, manufacturers, and subjobbers that sell alternative nicotine products and vapor products. A component, part, or accessory of a vapor product is considered a vapor product if sold in combination with a substance containing nicotine, a nicotine analog, tobacco, or tobacco derivatives. Alternative nicotine products and vapor products are included in the inventory tax under Iowa Code section 453A.40. The Bill establishes a 10.0% tax on the wholesale sales price of alternative nicotine products and vapor products. The Bill also establishes a 10.0% tax on the cost of alternative nicotine products and vapor products used or stored in the State if the wholesale tax on the products was not paid. Revenues from the taxes are deposited in the Iowa Cancer Research Fund. The Bill establishes the Iowa Cancer Research Fund under the control of the Department of Health and Human Services (HHS). Moneys in the Fund must be used to support and fund cancer research in the State and may not be disbursed until July 1, 2026. Interest or earnings on the Fund are deposited in the Fund. Moneys in the Fund at the close of a fiscal year remain in the Fund and do not revert to the General Fund. The HHS must report on the Fund pursuant to Iowa Code section 217.21.

The Bill takes effect January 1, 2026.

Background

A nicotine analog is a substance that has a chemical structure substantially similar to nicotine or that has an effect on the central nervous system that is substantially similar to, or greater than, the effects of nicotine.

Under current law, a component, part, or accessory of a vapor product is not regulated as a vapor product. Nicotine analogs are not considered alternative nicotine products. Alternative nicotine products and vapor products are subject to the sales and use tax. Cigarette and tobacco taxes do not apply to alternative nicotine products and vapor products that do not contain tobacco.

The inventory tax is applied on the effective date of an increase to the tax rate for cigarettes, little cigars, tobacco products, unused cigarette tax stamps, and unused metered imprints. The inventory tax rate is the difference between the amount of tax paid on each item and the new amount required to be paid on each item. The inventory tax goes into effect only if there is an increase in the tax rate for cigarettes, little cigars, tobacco products, unused cigarette tax stamps, and unused metered imprints.

A State permit under Iowa Code section 453A.13 and a local permit under Iowa Code section 453A.47A are required for the sale of alternative nicotine products and vapor products.

Assumptions

• No future changes to the tax rates of cigarettes, tobacco, vapor products, and alternative nicotine products will occur.
• Iowa’s population is 0.96% of the U.S. population.
• Iowa’s population uses vapor products and alternative nicotine products at the same rate as the national population.
• The market share of the five largest vapor product and alternative nicotine product producers is 73.0%.
• Vapor product unit sales are composed of 58.1% disposable vapor products, 41.8% cartridge system vapor products, and 0.1% open system products.
• The price per unit of disposable vapor products is 55.8% of the price of cartridge system vapor products. The price per unit of open system products is 47.6% of the price of cartridge system vapor products.
• Wholesale prices are 60.0% of retail prices.
• The inventory tax applies to alternative nicotine products and vapor products on the effective date of the Bill.
• Businesses involved in the wholesaling and retailing of alternative nicotine products and vapor products keep two months of inventory.
• The sales price of alternative nicotine products and vapor products is assumed to increase by 2.0% per year. Sales of alternative nicotine products and vapor products are assumed to increase by 5.54% per year.

Fiscal Impact

Senate File 638 is estimated to increase revenue to the Iowa Cancer Research Fund by the amounts in Figure 1.

Figure 1 — Revenue to the Iowa Cancer Research Fund (in Millions)Iowa Cancer

Research Fund

FY 2026 4.1$ FY 2027 6.6 FY 2028 7.1 FY 2029 7.7 FY 2030 8.3

Sources

• Iowa Department of Revenue
• Federal Trade Commission
• CDC Foundation
• Centers for Disease Control and Prevention
• United States Census Bureau
• Statista
• Legislative Services Agency calculations