Tobacco Tax Overhaul: Bill Hikes Cigarette, Cigar, and RYO Taxes, Adds New Levy on Nicotine Itself

The 'End Tobacco Loopholes Act' proposes significant increases to federal excise taxes across nearly all tobacco products and introduces a new tax specifically targeting nicotine used outside of FDA-approved cessation therapies. The core idea is to close perceived gaps where some tobacco or nicotine products face lower taxes than others, particularly compared to traditional cigarettes.

Across-the-Board Tax Increases

This bill casts a wide net, adjusting tax rates for almost everything containing tobacco or nicotine. Key changes include:

• Cigarettes: Taxes would roughly double, rising to $100.66 per 1,000 small cigarettes (about $2.01 per pack) and $211.38 per 1,000 large cigarettes.
• Roll-Your-Own & Pipe Tobacco: Both would see a substantial jump, taxed equally at $49.56 per pound.
• Smokeless Tobacco: Rates are adjusted, with a specific structure for "discrete single-use units" like pouches or lozenges ($26.84, $10.74, or $100.66 per thousand units, depending on the specifics).
• Cigars: Small cigars would be taxed like small cigarettes ($100.66 per 1,000). Large cigars face a rate of $49.56 per pound, but with a minimum tax ensuring it's at least 10.066 cents per cigar.

The goal appears to be achieving "tax equity," meaning similar products face similar tax burdens, potentially reducing incentives for users to switch to lower-taxed options solely based on price.

Nicotine Gets Its Own Tax Bill

A major shift is the introduction of a tax on "taxable nicotine." This covers nicotine that's been extracted, concentrated, or synthesized, unless it's part of an FDA-approved drug (like patches or gum). The tax rate is pegged to the cigarette tax, specifically applying the rate for 1,000 small cigarettes ($100.66 under this bill) to every 1,810 milligrams of nicotine. This directly impacts products like e-cigarette liquids, where the tax would depend purely on nicotine content. For example, a product containing 1,810 mg of nicotine would face the same $100.66 federal excise tax as 1,000 cigarettes. Manufacturers of this taxable nicotine would also need permits, similar to traditional tobacco product manufacturers.

Keeping Pace and Catching Stockpiles

The bill includes provisions to ensure these taxes keep up and apply immediately. Starting in 2025, the tax rates would be adjusted annually for inflation based on the standard cost-of-living calculation. Additionally, a "floor stocks tax" would apply on the date the tax increases take effect. Any tobacco products or taxable nicotine already manufactured or imported and held for sale (e.g., in warehouses or on store shelves) would be subject to a tax equal to the difference between the new and old rates. There's a small $500 credit available against this floor tax liability. This aims to prevent businesses from profiting by stockpiling lower-taxed inventory right before the hike.

Rollout and Realities

Most of these tax changes would apply starting the month after the bill's enactment. However, some have delayed timelines: the rules for discrete single-use units and processed tobacco kick in 6 months later, the large cigar changes after December 31, 2025, and the taxable nicotine provisions 180 days after enactment. There's also a transition rule allowing businesses dealing in taxable nicotine to continue operating while their permit application is processed, provided they apply within 90 days. Businesses across the supply chain, from manufacturers to retailers, will need to prepare for new tax calculations, compliance requirements, and the potential impact on consumer prices and demand.