ORDINANCE 8458 ELECTRONIC DEVICE TAXATION AND LICENSING

Kathy Haddock, Senior Counsel Joel Wagner, Tax and Special Projects Manager Kara Skinner, Assistant Director of Finance Ordinance 8458 to Resolve Confusion Related to Electronic Smoking Devices Ordinance 8340 adopted in 2019 • Prohibited the sale of Flavored Products • Prohibited the sale of Tobacco Products to those under the age of 21 years • Defined ESDs: “Any product containing or delivering intended for human consumption that can be used by an individual to simulate smoking in the delivery of nicotine or any other substance, even if marketed as nicotine-free, through inhalation from the product.” • Imposed civil penalties up to $5,000 per occurrence for violations Ballot Issue for Tax on Tobacco and/or ESDs

• In 2019 staff submitted potential ballot measures: • 8341 to tax and other tobacco products • 8342 to tax electronic smoking devices • Council chose to put 8342 on the ballot as Ballot Issue 2G • Between 2nd and final reading, the Ballot Issue was changed to read: Tax on all “electronic smoking devices, including any refill, cartridge or component of such a product tobacco products sold not including cigarettes Council Intent in Ordinances and Tax

• The legislative history (from 20 listed in Ordinance 8340) shows that council concerns included: • products being “starter” products for minors to begin using nicotine • The dangers of vaping by middle and high schoolers of both tobacco and marijuana • The 8,000 percent increase in use of electronic cigarettes and other smoking devices of middle and high school students between 2011 and 2015 • The statistics regarding nicotine to minors, particularly of candy- and fruit-flavored products • Scientific studies show users likely to try quitting use if there was a ban • Vaping is a problem in Colorado and particularly in Boulder: • a 2018 survey of 37 states found Colorado has the highest level of vaping among high school students at double the national average; • Boulder County Healthy Kids survey shows an average 33 percent use among high schoolers in Boulder; Colorado average is 26.2 percent and national average is 13.2 percent Ordinance Imposing Tax and Licensing •Ordinance 8376 (January 2020) •Imposed voter-approved 40 percent tax on ESDs •Defined “Tobacco Retailer” responsible for collecting and remitting tax on ESDs • ESDs sold by retailers that did not sell tobacco •ESDs included in list of “tobacco products” but definition not limited to tobacco ESDs •Required “Tobacco Retailers” to obtain license from city •Exempted marijuana from ESD tax 2019 ESD Ballot Language SHALL CITY OF BOULDER TAXES BE INCREASED TWO MILLION FIVE HUNDRED THOUSAND DOLLARS (FIRST FULL FISCAL YEAR INCREASE) ANNUALLY BY IMPOSING A SALES AND USE TAX OF UP TO 40 PERCENT OF THE RETAIL SALES PRICE OF ALL ELECTRONIC SMOKING DEVICES, INCLUDING ANY REFILL, CARTRIDGE OR COMPONENT OF SUCH A PRODUCT; THE TERM “ELECTRONIC SMOKING DEVICE” SHALL HAVE THE MEANING AS IN SECTION 6-4.5-1 OF THE BOULDER REVISED CODE; AND IN CONNECTION THEREWITH, SHALL ALL OF THE REVENUES COLLECTED BE USED TO FUND: THE ADMINISTRATIVE COST OF THE TAX, AND THEREAFTER FOR: IMPLEMENTATION AND ADMINISTRATION OF A LICENSING PROGRAM FOR ALL NICOTINE PRODUCT RETAILERS; HEALTH PROMOTION; EDUCATION PROGRAMS REGARDING NICOTINE PRODUCT USE INCLUDING ENFORCEMENT; WITH ANY REMAINING FUNDS BEING AVAILABLE FOR GENERAL GOVERNMENT SERVICES, INCLUDING LIBRARY, POLICE, FIRE, PARKS, TRANSPORTATION AND GENERAL GOVERNMENT ADMINISTRATION? ALL EFFECTIVE JANUARY 1, 2020, AND IN CONNECTION THEREWITH, SHALL THE FULL PROCEEDS OF SUCH TAXES AT SUCH RATES AND ANY EARNINGS THEREON BE COLLECTED, RETAINED, AND SPENT, AS A VOTER-APPROVED REVENUE CHANGE WITHOUT LIMITATION OR CONDITION, AND WITHOUT LIMITING THE COLLECTION, RETENTION, OR SPENDING OF ANY OTHER REVENUES OR FUNDS BY THE CITY OF BOULDER UNDER ARTICLE X SECTION 20 OF THE COLORADO CONSTITUTION OR ANY OTHER LAW? Challenges Found During Implementation

• Many different retailers of ESDs • Grocery/convenience stores • Bars • Liquor stores • Tobacco/Smoke shops • Marijuana Retailers • Defining those responsible for tax as “Tobacco Retailers” misleading or exemptions not meeting deterrence goal Arguments Against Uniform Application of ESD Tax

• Tax only for ESDs sold by retailers selling tobacco • Exact same device sold by retailers that don’t sell tobacco are not taxed • Creates competitive disadvantage to some retailers and advantage to others • Does not implement will of voters to tax all ESDs

• Tax should not be on ESDs that contain or are used for marijuana • Treats marijuana businesses differently than other retailers • Marijuana businesses argued for equal treatment with selling hemp products Arguments Against Uniform Application of ESD Tax (cont’d) • Putting marijuana in an ESD should exempt ESD from tax • Changes tax from device to an intended use of device tax • Inconsistent with will of voters to tax all ESDs • If device made for particular use, should not be taxed • If device can be used for one type of plant material, can be used for others • Devices originally marketed for tobacco use have since changed to marketing for marijuana items • Marketing often includes disclaimers - not to be used for anything illegal under federal law Examples of Devices and Taxation All ESDs, including cartridges , pods, disposables and components Taxable at 40%1

Retail price of ESD taxable at 40%1, Retail price of marijuana taxable at 3.5%1

1 Tax shown is in addition to regular 3.86% sales tax ESD - Disposables

https://puffbar.com/ https://healthvape.com/products/ https://marquiscannabis.com/retai energy l-21/ ESD - Disposable Pods

https://www.magnoliaroadcc.com https://www.themagicmist.c https://www.pax.com https://www.juul.com om ESD - Refillable Devices

https://www.kandypens.com https://vaping360.com/best-weed- https://www.directvapor.com/aspire- vaporizers/ puxos-100w-tc-vape-starter-kit-w- battery/ ESD

https://www.storz-bickel.com/media/dl/volcano/volcano- en.pdf ESDs (cont’d)

https://www.puffco.com/ ESDs (cont’d)

https://www.inc.com/will-yakowicz/pax-labs-vaporizer-company-raises-47-million.html June 10, 2015 Staff Recommendation

•Change definition so it is not misleading that both Tobacco and ESD retailers must collect and remit tax • Marijuana inside an ESD can be subtracted from retail price of ESD and taxed at marijuana rate •Clarify that license requirement extends to retailers of Tobacco and ESDs • Because marijuana retailers have a specialized license from the city, they do not also have to obtain ESD Retailer license QUESTIONS?