Vape tax eyed as tobacco funds drop in Arizona

So now, First Things First, which distributes the money, is asking lawmakers to create an entirely new levy on vaping products, hoping to make up about $100 million a year in lost revenues. And the quasi-government agency, hoping to cobble together the votes, has even commissioned a poll designed to convince legislators that the public would support the move.

The organization has its work cut out for it.

New taxes are possible only with a two-thirds vote of both the House and the Senate, along with the consent of the governor. And those kinds of margins are difficult to achieve, particularly with several Republican lawmakers having taken a pledge to never support raising taxes.

But Melinda Morrison Gulick, who is the CEO of First Things First, is marketing the idea that this shouldn't be seen as a new tax. Instead, she said, it is simply fulfilling the will of the voters who agreed in 2006 — albeit by a 53.2% margin — to tax tobacco products to finance the programs.

In its first full year, the levy brought $169 million.

And now? Projections are for collections to be in the $89 million range.

The reason for the drop: A shift in consumer habits.

"Consumer choice has entered the market,'' Gulick explained. Put simply, vaping wasn't really popular in 2006.

The first devices were designed to look and feel like regular cigarettes and were marketed largely to adults trying to quit tobacco.

That paved the way for more sophisticated devices and the earliest flavored varieties. And now the market is flooded with disposable devices that offer relatively low-cost, high-nicotine options.

Gulick said there's no reason to exempt those products, often sold at the same outlets where people can buy cigarettes and the like, from the levy.

"We believe that this honors the voters' intent,'' she said. "If these products had been in the marketplace in 2006, they would have been included.''

But they weren't. And now, with the shift in consumer use, that leaves First Things First and its programs for children from birth to age 5 short of the funds needed for its program.

"That means less family resource centers,'' Gulick said, locations where parents can get information about childhood development and connect with local services like healthcare providers, immunization services, and developmental screenings.

There's also less money to provide to child care providers to offer actual programs where children can learn and develop. And "scholarships'' are available to some families who cannot otherwise afford child care.

The solution being offered is to impose a tax equal to 50% of the retail value of all vaping devices, to be paid by customers at retail shops. That's what Gulick says could raise the needed $100 million.

Part of that sales job will consist of convincing legislators that there's no real political downside to supporting the new levy. And that's where the result of the Data Orbital poll would come it.

The survey of 600 people asked how a lawmaker's vote would affect their attitudes about that person. It found that more than 69% said they would be more likely to support that person, with 15.3% saying they would be less likely to back that legislator.

And respondents were also asked whether programs to support children from birth to age 5 should be funded by the state or by private enterprise. Here, too, the poll — a tool that will be used to build legislative support — found 69.4% saying this is a role for state funding versus 21.4% saying it should be left to private enterprise.

But legislative support — particularly lining up 20 of the 30 senators and 40 of the 60 representatives — is by no means a sure thing.

In 2025, Rep. Consuelo Hernandez, D-Tucson, introduced legislation that was backed by First Things First: a 50% tax on the wholesale price of all nicotine and vapor products. She even offered to give 40% of anything collected to the state general fund that lawmakers could use for any purpose they want.

Her bill was assigned to the House Ways and Means Committee. But Rep. Justin Olson, who chairs that panel, refused to even give it a hearing.

"I don't support tax increases,'' the Mesa Republican told Capitol Media Services. "I came to the Legislature to cut taxes, not to raise them.''

Gulick conceded that a 50% tax — and one levied at the retail level — might not seem fair. That's because it would take a much bigger bite from consumers, percentage-wise, than 80 cents they now have to pay for a pack of cigarettes to fund First Things First programs.

A typical pack of cigarettes in Arizona now runs above $10. That includes $2 in state taxes, including not just the First Things First Tax but a separate levy that finances healthcare and programs to help people quit smoking.

Gulick said, though, the amount is still defensible, saying similar levies in other states range from 15% all the way to 90% of retail prices. But she also said First Things First is prepared to work with lawmakers to come up with whatever figure can get the necessary votes.

That number and how the program is administered could be crucial to getting the support of the vaping industry.

In the past, companies have not opposed related bills on regulation of vaping -- as long as such actions do not single out the industry for special or punitive treatment. Any agreement on what First Things First wants would appear to depend on the details.

"Arizona Innovates is open to a model that provides additional funds for state programs that the legislators and the governor believe are worthy of investment,'' said John Paul Willett. He is the chairman of the industry coalition Arizona Innovates.

"Any policy would need to be carefully examined to understand where the money is going and the impact on the consumer market,'' Willett said. "The last thing we want is to encourage a black market for consumer products.''

That refers to a problem that can exist with any product that is highly taxed by a state, where customers avoid the levy by having the items shipped to them from elsewhere. And if that occurs in a large way, it not only denies business for regulated Arizona retailers but also means less money for the programs they finance.

Gulick, for her part, is counting on allies to help them push the plan through the Legislature and be able to bring around some lawmakers who may be on the fence. And she is hoping much of that comes from the leaders of major corporations and business groups.

"The biggest barrier to labor force participation is access to affordable, high-quality child care,'' Gulick said.

"We have a lot of support from the business community,'' she continued. "Will that coalesce around this issue as a key issue remains to be seen.''

It isn't just a matter of lining up the votes of 20 senators and 40 representatives to get the necessary two-thirds margin to put the levy into effect. It also would need the signature of whoever is governor next session.

Incumbent Katie Hobbs did weigh in last year — sort of — when the idea was first discussed.

"I think that funding goes to a really important purpose,'' she told Capitol Media Services. And the governor said that the revenue numbers are no surprise.

"We knew that if tobacco prevention programs were successful that the funding would decrease,'' Hobbs said.

She also said that it is not realistic for the gap to be filled with state tax dollars now earmarked for other programs.

"We have to look at all the ways possible to keep funding programs that Arizonans rely on and want,'' Hobbs said. But the governor would not commit to signing any bill until she sees the final language.

The governor's press aide said Friday that Hobbs' views have not changed since then.

A spokesman for Andy Biggs said the Republican candidate for governor wants to see actual legislation and revenue numbers before taking a position. But Biggs could be a hard sell.

"He has no plans or desires for any new taxes,'' said Drew Sexton.