H.F. 2406 DIVISION I 1 TAXATION ON TOBACCO-RELATED PRODUCTS 2 Section 1. Section 453A.1, Code 2026, is amended by adding 3 the following new subsection: 4 NEW SUBSECTION . 18A. “Nicotine” means any form of the 5 chemical nicotine, including any salt or complex, from 6 any source, and includes nicotinic alkaloids and nicotine 7 analogs and any substance intended to mimic or replicate 8 the pharmacological effect of nicotine. For purposes of 9 this subsection, any communication by, or on behalf of, the 10 manufacturer, distributor, or retailer of a tobacco product 11 that indicates that the product contains a nicotine analog 12 constitutes presumptive evidence that the product contains a 13 nicotine analog and meets the definition of nicotine. 14 Sec. 2. Section 453A.1, subsection 28, Code 2026, is amended 15 to read as follows: 16 28. “Tobacco products” means cigars; little cigars as 17 defined in section 453A.42, subsection 6 ; cheroots; stogies; 18 periques; granulated; plug cut, crimp cut, ready rubbed, 19 and other smoking tobacco; snuff, snuff flour; cavendish; 20 plug and twist tobacco; fine-cut and other chewing tobaccos; 21 shorts; or refuse scraps, clippings, cuttings and sweepings of 22 tobacco, and other kinds and forms of tobacco, prepared in such 23 manner as to be suitable for chewing or smoking in a pipe or 24 otherwise, or both for chewing and smoking consumption in any 25 manner ; but does not mean cigarettes. 26 Sec. 3. Section 453A.6, subsection 1, Code 2026, is amended 27 to read as follows: 28 1. There is imposed, and shall be collected and paid to the 29 department, a tax on all cigarettes used or otherwise disposed 30 of in this state for any purpose equal to six fourteen and 31 eight-tenths three-tenths cents on each cigarette. 32 Sec. 4. Section 453A.6, subsection 8, paragraph a, Code 33 2026, is amended to read as follows: 34 a. Pay directly to the department, in lieu of the tax under 35 -1- LSB 5801YH (5) 91 jm/jh 1/ 16

H.F. 2406 subsection 1 , a tax equal to three and six six and forty-three 1 hundredths cents on each cigarette dispensed from such machine. 2 Payments made under this paragraph shall be remitted to the 3 department electronically. 4 Sec. 5. Section 453A.6, Code 2026, is amended by adding the 5 following new subsection: 6 NEW SUBSECTION . 9. a. Beginning on January 1, 2029, and 7 for each January 1 thereafter, the department shall adjust the 8 rate of the tax imposed in subsections 1 and 8 if required 9 under paragraph “b” , which shall include any adjustment made in 10 prior calendar years under this subsection, by multiplying the 11 rate of tax imposed under subsections 1 and 8, respectively, 12 by the inflation adjustment determined under paragraph “b” to 13 determine the new rate of tax for the calendar year. 14 b. (1) Beginning with the calendar year January 1, 2027, 15 and for each calendar year thereafter, the department shall 16 determine the average retail price by surveying cigarette 17 retailers and vendors on a statewide basis in a manner and time 18 determined by the department. The department shall calculate 19 the inflation adjustment for the calendar year in which the new 20 tax rate takes effect by comparing the average retail price of 21 cigarettes in the current survey with the average retail price 22 of cigarettes in the survey from the previous calendar year. 23 (a) If the survey indicates the average retail sales price 24 of cigarettes has increased relative to the average retail 25 sales price in the survey from the previous calendar year, the 26 inflation adjustment used in paragraph “a” shall be the quotient 27 of the average retail sales price of the current survey and 28 the average retail sales price of the survey from the previous 29 calendar year. 30 (b) If the survey indicates that the average retail price 31 of cigarettes has not increased relative to the average retail 32 price of the survey from the previous calendar year, then the 33 department shall not make an inflation adjustment. 34 (2) The department shall exclude from the survey any price 35 -2- LSB 5801YH (5) 91 jm/jh 2/ 16

H.F. 2406 increase attributable to any increase in state or federal tax 1 rates. 2 c. If a tax rate is adjusted pursuant to this subsection, 3 the department shall cause an advisory notice containing 4 the new tax rate to be published in the Iowa administrative 5 bulletin and on the internet site of the department of revenue. 6 The calculation and publication of the adjusted tax rate by the 7 director of revenue is exempt from chapter 17A, and shall be 8 submitted for publication by the first December 31 following 9 the determination date to adjust a tax rate. 10 Sec. 6. Section 453A.39, Code 2026, is amended by adding the 11 following new subsection: 12 NEW SUBSECTION . 3. A package of alternative nicotine 13 products shall not contain more than twenty separately 14 consumable products within the package. 15 Sec. 7. Section 453A.42, subsections 2 and 16, Code 2026, 16 are amended to read as follows: 17 2. “Consumer” means any person who has title to or 18 possession of tobacco products , alternative nicotine products, 19 or vapor products in storage, for use or other consumption in 20 this state. 21 16. “Tobacco products” means cigars; little cigars as 22 defined herein ; cheroots; stogies; periques; granulated, plug 23 cut, crimp cut, ready rubbed, and other smoking tobacco; snuff; 24 snuff flour; cavendish; plug and twist tobacco; fine-cut and 25 other chewing tobaccos; shorts; or refuse scraps, clippings, 26 cuttings and sweepings of tobacco, and other kinds and forms of 27 tobacco, prepared in such manner as to be suitable for chewing 28 or smoking in a pipe or otherwise, or both for chewing and 29 smoking consumption in any manner ; but shall not include does 30 not mean cigarettes as defined in section 453A.1, subsection 4 . 31 Sec. 8. Section 453A.43, Code 2026, is amended to read as 32 follows: 33 453A.43 Tax on tobacco products. 34 1. a. A tax is imposed upon all tobacco products , 35 -3- LSB 5801YH (5) 91 jm/jh 3/ 16

H.F. 2406 alternative nicotine products, and vapor products in this 1 state and upon any person engaged in business as a distributor 2 of tobacco products, alternative nicotine products, or vapor 3 products at the rate of twenty-two fifty percent of the 4 wholesale sales price of the tobacco products, except little 5 cigars and snuff as defined in section 453A.42 alternative 6 nicotine products, or vapor products . Notwithstanding the rate 7 of tax imposed in this paragraph “a” , a different rate of tax 8 shall be imposed on the wholesale sales price if applicable 9 under paragraph “b” , and little cigars shall be subject to the 10 tax as specified pursuant to paragraph “c” . 11 b. In addition to the tax imposed under paragraph “a” , a 12 tax is imposed upon all tobacco products in this state and upon 13 any person engaged in business as a distributor of tobacco 14 products, at the rate of twenty-eight percent of the wholesale 15 sales price of the tobacco products, except little cigars and 16 snuff as defined in section 453A.42 . 17 c. Notwithstanding the rate of tax imposed pursuant to 18 paragraphs “a” and “b” , if the tobacco product is a cigar, the 19 total amount of the tax imposed pursuant to paragraphs “a” and 20 “b” combined shall not exceed fifty cents per cigar. 21 b. When the rate of tax imposed on the wholesale sales 22 price equals less than two dollars and eighty-six cents under 23 paragraph “a” , the rate of tax imposed on the wholesale sales 24 price under paragraph “a” shall be recalculated and imposed at a 25 rate equaling two dollars and eighty-six cents. 26 d. c. Little cigars shall be subject to the same rate of 27 tax imposed upon cigarettes in section 453A.6 , payable at the 28 time and in the manner provided in section 453A.6 ; and stamps 29 shall be affixed as provided in subchapter I of this chapter . 30 Snuff shall be subject to the tax as provided in subsections 3 31 and 4 . 32 e. d. The taxes on tobacco products, alternative nicotine 33 products, vapor products, excluding little cigars and snuff , 34 shall be imposed at the time the distributor does any of the 35 -4- LSB 5801YH (5) 91 jm/jh 4/ 16

H.F. 2406 following: 1 (1) Brings, or causes to be brought, into this state from 2 outside the state tobacco products for sale. 3 (2) Makes, manufactures, or fabricates tobacco products in 4 this state for sale in this state. 5 (3) Ships or transports tobacco products to retailers in 6 this state, to be sold by those retailers. 7 2. a. A tax is imposed upon the use or storage by consumers 8 of tobacco products , alternative nicotine products, and 9 vapor products in this state, and upon the consumers, at the 10 rate of twenty-two fifty percent of the cost of the tobacco 11 products , alternative nicotine products, or vapor products . 12 Notwithstanding the rate of tax imposed in this paragraph “a” , 13 a different rate of tax shall be imposed on the use or storage, 14 if applicable, under paragraph “b” . 15 b. In addition to the tax imposed in paragraph “a” , a tax 16 is imposed upon the use or storage by consumers of tobacco 17 products in this state, and upon the consumers, at a rate of 18 twenty-eight percent of the cost of the tobacco products. 19 c. Notwithstanding the rate of tax imposed pursuant to 20 paragraphs “a” and “b” , if the tobacco product is a cigar, the 21 total amount of the tax imposed pursuant to paragraphs “a” and 22 “b” combined shall not exceed fifty cents per cigar. 23 b. When the rate of tax imposed on the use or storage equals 24 less than two dollars and eighty-six cents under paragraph “a” , 25 the rate of tax imposed on the use or storage under paragraph 26 “a” shall be recalculated and imposed at a rate equaling two 27 dollars and eighty-six cents. 28 d. c. The taxes imposed by this subsection shall not apply 29 if the taxes imposed by subsection 1 on the tobacco products 30 have been paid. 31 e. d. The taxes imposed under this subsection shall not 32 apply to the use or storage of tobacco products in quantities 33 of: 34 (1) Less than twenty-five cigars. 35 -5- LSB 5801YH (5) 91 jm/jh 5/ 16

H.F. 2406 (2) Less than one pound smoking or chewing tobacco or other 1 tobacco products not specifically mentioned herein, in the 2 possession of any one consumer. 3 3. A tax is imposed upon all snuff in this state and upon 4 any person engaged in business as a distributor of snuff at 5 the rate of one dollar and nineteen cents per ounce, with a 6 proportionate tax at the same rate on all fractional parts of 7 an ounce of snuff. The tax shall be computed based on the net 8 weight listed by the manufacturer. The tax on snuff shall be 9 imposed at the time the distributor does any of the following: 10 a. Brings or causes to be brought into this state from 11 outside the state, snuff for sale. 12 b. Makes, manufactures, or fabricates snuff in this state 13 for sale in this state. 14 c. Ships or transports snuff to retailers in this state, to 15 be sold by those retailers. 16 4. a. A tax is imposed upon the use or storage by consumers 17 of snuff in this state, and upon the consumers, at the rate of 18 one dollar and nineteen cents per ounce with a proportionate 19 tax at the same rate on all fractional parts of an ounce of 20 snuff. The tax shall be computed based on the net weight as 21 listed by the manufacturer. 22 b. The tax imposed by this subsection shall not apply if the 23 tax imposed by subsection 3 on snuff has been paid. 24 c. The tax shall not apply to the use or storage of snuff in 25 quantities of less than ten ounces. 26 5. 3. Any tobacco product , alternative nicotine product, 27 or vapor product with respect to which a tax has once been 28 imposed under this subchapter shall not again be subject to tax 29 under this subchapter , except as provided in section 453A.40 30 or 453A.47C . 31 6. 4. The tax imposed by this section shall not apply with 32 respect to any tobacco product which under the Constitution 33 and laws of the United States may not be made the subject of 34 taxation by this state. 35 -6- LSB 5801YH (5) 91 jm/jh 6/ 16

H.F. 2406 7. 5. The tax imposed by this section shall be in addition 1 to all other occupation or privilege taxes or license fees now 2 or hereafter imposed by any city or county. 3 8. 6. All excise taxes collected under this chapter by a 4 distributor or any individual are deemed to be held in trust 5 for the state of Iowa. 6 DIVISION II 7 CONFORMING CHANGES 8 Sec. 9. Section 331.303, subsection 3, Code 2026, is amended 9 to read as follows: 10 3. Act upon applications for cigarette , tobacco product, 11 alternative nicotine product, and vapor product tax permits in 12 accordance with chapter 453A . 13 Sec. 10. Section 331.653, subsection 11, Code 2026, is 14 amended to read as follows: 15 11. Carry out duties relating to the seizure and forfeiture 16 of cigarettes, tobacco products, alternative nicotine products, 17 and vapor products, vehicles, and other property used in 18 violation of cigarette , tobacco product, alternative nicotine 19 product, and vapor product tax laws as provided in section 20 453A.32 . 21 Sec. 11. Section 331.756, subsection 19, Code 2026, is 22 amended to read as follows: 23 19. Assist, at the request of the director of revenue, 24 in the enforcement of cigar and cigarette, tobacco product, 25 alternative nicotine product, and vapor product tax laws as 26 provided in sections 453A.32 and 453A.49 . 27 Sec. 12. Section 453A.1, subsections 19 and 21, Code 2026, 28 are amended to read as follows: 29 19. “Package” or “pack” means a container of any kind in 30 which cigarettes , or tobacco products , alternative nicotine 31 products, or vapor products are offered for sale, sold, or 32 otherwise distributed to consumers. 33 21. “Place of business” is construed to mean and include 34 any place where cigarettes , alternative nicotine products, 35 -7- LSB 5801YH (5) 91 jm/jh 7/ 16

H.F. 2406 or vapor products are sold or where cigarettes , alternative 1 nicotine products, or vapor products are stored within or 2 without the state of Iowa by the holder of an Iowa permit or 3 kept for the purpose of sale or consumption; or if sold from 4 any vehicle or train, the vehicle or train on which or from 5 which such cigarettes , alternative nicotine products, or vapor 6 products are sold shall constitute a place of business; or for 7 a business within or without the state that conducts delivery 8 sales, any place where alternative nicotine products or vapor 9 products are sold or where alternative nicotine products or 10 vapor products are kept for the purpose of sale. 11 Sec. 13. Section 453A.15, subsections 1, 2, and 4, Code 12 2026, are amended to read as follows: 13 1. The director may prescribe the forms necessary for the 14 efficient administration of this subchapter and may require 15 uniform books and records to be used and kept by each permit 16 holder or other person as deemed necessary. The director may 17 also require each permit holder or other person to keep and 18 retain in the director’s possession evidence on prescribed 19 forms of all transactions involving the purchase and sale of 20 cigarettes , tobacco products, alternative nicotine products, 21 or vapor products, or the purchase and use of stamps. The 22 evidence shall be kept for a period of three years from the 23 date of each transaction, for the inspection at all times by 24 the department. 25 2. Where a state permit holder sells cigarettes , tobacco 26 products, alternative nicotine products, or vapor products 27 at retail, the holder shall be required to maintain detailed 28 records for sales of cigarettes , tobacco products, alternative 29 nicotine products, or vapor products to be sold at retail and 30 the cigarette such sales records shall be kept separate and 31 apart. 32 4. Every permit holder or other person shall, when requested 33 by the department, make additional reports as the department 34 deems necessary and proper and shall at the request of the 35 -8- LSB 5801YH (5) 91 jm/jh 8/ 16

H.F. 2406 department furnish full and complete information pertaining to 1 any transaction of the permit holder or other person involving 2 the purchase or sale or use of cigarettes , tobacco products, 3 alternative nicotine products, or vapor products, or purchase 4 of cigarette stamps. 5 Sec. 14. Section 453A.24, Code 2026, is amended to read as 6 follows: 7 453A.24 Carrier to permit access to records. 8 1. Every common carrier or person in this state having 9 custody of books or records showing the transportation of 10 cigarettes , tobacco products, alternative nicotine products, or 11 vapor products, both interstate and intrastate , shall give and 12 allow the department free access to those books and records. 13 2. The director may require by rule that common carriers 14 or the appropriate persons provide monthly reports to the 15 department detailing all information the department deems 16 necessary on shipments into and out of Iowa of cigarettes , 17 and tobacco products , alternative nicotine products, or vapor 18 products as set forth in this subchapter I and subchapter 19 II of this chapter . A report required to be submitted 20 by the director pursuant to this section shall be filed 21 electronically. 22 Sec. 15. Section 453A.32, subsection 6, Code 2026, is 23 amended to read as follows: 24 6. The provisions of this section applying to cigarettes 25 shall also apply to tobacco products , alternative nicotine 26 products, and vapor products taxed under subchapter II of this 27 chapter . 28 Sec. 16. Section 453A.33, Code 2026, is amended to read as 29 follows: 30 453A.33 Seizure not to affect criminal prosecution. 31 The seizure, forfeiture, and sale of cigarettes, tobacco 32 products, alternative nicotine products, vapor products, and 33 other property under the terms and conditions set out in 34 section 453A.32 , shall not constitute any defense to the person 35 -9- LSB 5801YH (5) 91 jm/jh 9/ 16

H.F. 2406 owning or having control or possession of the property from 1 criminal prosecution for any act or omission made or offense 2 committed under this chapter or from liability to pay penalties 3 provided by this chapter . 4 Sec. 17. Section 453A.35, subsection 1, paragraph b, Code 5 2026, is amended to read as follows: 6 b. The revenues generated from the tax on cigarettes 7 pursuant to section 453A.6, subsection 1 subsections 1 and 8 8 , from the tax on tobacco products as specified in section 9 453A.43, subsections 1, 2, 3, and 4 , and from the fees and 10 penalties specified in subchapter III shall be credited to the 11 health care trust fund created in section 453A.35A . 12 Sec. 18. Section 453A.35A, subsection 1, Code 2026, is 13 amended to read as follows: 14 1. A health care trust fund is created in the office of 15 the treasurer of state. The fund consists of the revenues 16 generated from the tax on cigarettes pursuant to section 17 453A.6, subsection 1 subsections 1 and 8 , from the tax on 18 tobacco products , alternative nicotine products, and vapor 19 products as specified in section 453A.43, subsections 1 , 2, 20 3, and 4 2 , and from the fees and penalties specified in 21 subchapter III , that are credited to the health care trust 22 fund, annually, pursuant to section 453A.35 . Moneys in the 23 fund shall be separate from the general fund of the state 24 and shall not be considered part of the general fund of the 25 state. Moneys in the fund shall be used only as specified 26 in this section and shall be appropriated only for the uses 27 specified. Moneys in the fund are not subject to section 8.33 28 and shall not be transferred, used, obligated, appropriated, 29 or otherwise encumbered, except as provided in this section . 30 Notwithstanding section 12C.7, subsection 2 , interest or 31 earnings on moneys deposited in the fund shall be credited to 32 the fund. 33 Sec. 19. Section 453A.39, subsection 1, Code 2026, is 34 amended to read as follows: 35 -10- LSB 5801YH (5) 91 jm/jh 10/ 16

H.F. 2406 1. A manufacturer, distributor, wholesaler, retailer, or 1 distributing agent, or an agent thereof of a manufacturer, 2 distributor, wholesaler, retailer, or distributing agent , shall 3 not give away cigarettes , or tobacco products , alternative 4 nicotine products, or vapor products at any time in connection 5 with the manufacturer’s, distributor’s, wholesaler’s, 6 retailer’s, or distributing agent’s business or for promotion 7 of the business or product, except as provided in subsection 2 . 8 Sec. 20. Section 453A.40, subsection 1, Code 2026, is 9 amended to read as follows: 10 1. All persons required to obtain a permit or to be licensed 11 under section 453A.13 or section 453A.44 having in their 12 possession and held for resale on the effective date of an 13 increase in the tax rate cigarettes, little cigars, or tobacco 14 products , alternative nicotine products, or vapor products upon 15 which the tax under section 453A.6 or 453A.43 has been paid, 16 unused cigarette tax stamps which have been paid for under 17 section 453A.8 , unused metered imprints which have been paid 18 for under section 453A.12 , or tobacco products for which the 19 tax has not been paid under section 453A.46 shall be subject to 20 an inventory tax on the items as provided in this section . 21 Sec. 21. Section 453A.42, subsections 1, 2, 8, 9, 10, 12, 22 14, and 17, Code 2026, are amended to read as follows: 23 1. “Business” means any trade, occupation, activity, 24 or enterprise engaged in for the purpose of selling or 25 distributing tobacco products , alternative nicotine products, 26 or vapor products in this state. 27 2. “Consumer” means any person who has title to or 28 possession of tobacco products , alternative nicotine products, 29 or vapor products in storage, for use or other consumption in 30 this state. 31 8. “Person” means any individual, firm, association, 32 partnership, joint stock company, joint adventure venture , 33 corporation, trustee, agency, or receiver, or any legal 34 representative of any of the foregoing individual, firm, 35 -11- LSB 5801YH (5) 91 jm/jh 11/ 16

H.F. 2406 association, partnership, joint stock company, joint venture, 1 corporation, trustee, agency, or receiver . 2 9. “Place of business” means any place where tobacco 3 products are sold or where tobacco products , alternative 4 nicotine products, or vapor products are manufactured, stored, 5 or kept for the purpose of sale or consumption, including any 6 vessel, vehicle, airplane, train, or vending machine; or for 7 a business within or without the state that conducts delivery 8 sales, any place where alternative nicotine products or vapor 9 products are sold or where alternative nicotine products or 10 vapor products are kept for the purpose of sale, including 11 delivery sales. 12 10. “Retail outlet” means each place of business from which 13 tobacco products , alternative nicotine products, or vapor 14 products are sold to consumers. 15 12. “Sale” means any transfer, exchange, or barter, in any 16 manner or by any means whatsoever, for a consideration, and 17 includes and means all sales made by any person. It includes 18 a gift by a person engaged in the business of selling tobacco 19 products, alternative nicotine products, or vapor products 20 for advertising, as a means of evading the provisions of this 21 subchapter , or for any other purposes whatsoever. 22 14. “Storage” means any keeping or retention of tobacco 23 products , alternative nicotine products, or vapor products for 24 use or consumption in this state. 25 17. “Use” means the exercise of any right or power 26 incidental to the ownership of tobacco products , alternative 27 nicotine products, or vapor products . 28 Sec. 22. Section 453A.45, subsection 3, Code 2026, is 29 amended to read as follows: 30 3. Every retailer and subjobber shall procure itemized 31 invoices of all tobacco products , alternative nicotine 32 products, and vapor products purchased. The invoices shall 33 show the name and address of the seller and the date of 34 purchase. The retailer and subjobber shall preserve a legible 35 -12- LSB 5801YH (5) 91 jm/jh 12/ 16

H.F. 2406 copy of each invoice for three years from the date of purchase. 1 Invoices shall be available for inspection by the director or 2 the director’s authorized agents or employees at the retailer’s 3 or subjobber’s place of business. 4 Sec. 23. Section 453A.48, subsection 3, Code 2026, is 5 amended to read as follows: 6 3. The director may exchange information with the officers 7 and agencies of other states administering laws relating to the 8 taxation of tobacco products , alternative nicotine products, 9 or vapor products . 10 Sec. 24. Section 453A.51, Code 2026, is amended to read as 11 follows: 12 453A.51 Assessment of cost of audit. 13 The department may employ auditors or other persons to 14 audit and examine the books and records of a permit holder 15 or other person dealing in tobacco products , alternative 16 nicotine products, and vapor products to ascertain whether 17 the permit holder or other person has paid the amount of the 18 taxes required to be paid by the permit holder or other person 19 under the provisions of this chapter . If the taxes have not 20 been paid, as required, the department shall assess against 21 the permit holder or other person, as additional penalty, the 22 reasonable expenses and costs of the investigation and audit. 23 EXPLANATION 24 The inclusion of this explanation does not constitute agreement with 25 the explanation’s substance by the members of the general assembly. 26 This bill relates to administration of and taxation 27 on tobacco-related products including imposing a tax on 28 alternative nicotine products and vapor products. 29 DIVISION I —— TAXATION ON TOBACCO-RELATED PRODUCTS. 30 TOBACCO PRODUCTS DEFINITION. The bill modifies the 31 definition of tobacco products to include any form of tobacco 32 for chewing or smoking consumption in any manner. 33 NICOTINE DEFINITION. The bill defines “nicotine” to mean 34 any form of the chemical nicotine, including any salt or 35 -13- LSB 5801YH (5) 91 jm/jh 13/ 16

H.F. 2406 complex, from any source, and includes nicotinic alkaloids 1 and nicotine analogs and any substance intended to mimic 2 or replicate the pharmacological effect of nicotine. The 3 bill specifies for purposes of the definition of nicotine, 4 any communication by, or on behalf of, the manufacturer, 5 distributor, or retailer of a tobacco product that indicates 6 that the product contains a nicotine analog constitutes 7 presumptive evidence that the product contains a nicotine 8 analog. 9 CIGARETTE TAXATION. The bill raises the cigarette tax from 10 6.8 cents per cigarette to 14.3 cents per cigarette. The 11 overall tax on a pack of cigarettes (20 cigarettes) goes from 12 $1.36 to $2.86. 13 The bill also raises the tax on loose tobacco products 14 inserted into a vending machine from which assembled cigarettes 15 are dispensed. The tax is increased from 3.06 cents on each 16 cigarette dispensed from the vending machine to 6.43 cents. 17 The bill creates an administrative process where the 18 cigarette tax may be increased in proportion to any retail 19 sales price increases from year to year. The bill requires 20 the department of revenue (department) to conduct a statewide 21 survey of retail cigarette prices to determine the amount of 22 increase from year to year. The tax is not increased if the 23 retail sales price of cigarettes does not increase from year to 24 year. In conducting the statewide survey of retail cigarette 25 prices, the bill prohibits the department from considering 26 state or federal tax increases on cigarettes in the survey. 27 If the cigarette tax is increased through the administrative 28 process, the bill requires the department to publish the new 29 rate in the Iowa administrative bulletin and publish the new 30 rate on the internet site of the department by December 31 31 following the determination date to adjust the tax rate. The 32 calculation and publication of the adjusted rate is exempt from 33 Code chapter 17A (Iowa administrative procedures Act). 34 By increasing the cigarette tax in the bill, the inventory 35 -14- LSB 5801YH (5) 91 jm/jh 14/ 16

H.F. 2406 tax is also assessed on cigarettes remaining in inventories 1 taxed under the previous tax rate that is equal to the 2 difference between the previous tax rate and the new tax rate. 3 Code section 453A.35 specifies that revenues from the tax 4 on cigarettes are deposited into the health care trust fund 5 created in Code section 453A.35A. 6 ALTERNATIVE NICOTINE PRODUCTS —— LIMITATIONS. The bill 7 prohibits a package of alternative nicotine products from 8 containing more than 20 separately consumable products within 9 the package. 10 TOBACCO PRODUCTS DEFINITION. The bill modifies the 11 definition of tobacco products to include snuff and snuff flour 12 and makes other changes to the definition. 13 TOBACCO PRODUCT, ALTERNATIVE NICOTINE PRODUCT, AND 14 VAPOR PRODUCT TAXATION. Currently, a tax is imposed on the 15 distributor of all tobacco products (excluding cigarettes, 16 little cigars, and snuff) at a rate of 22 percent of the 17 wholesale sales price under Code section 453A.43(1)(a) and at 18 a rate of 28 percent under Code section 453A.43(1)(b) for a 19 combined rate of 50 percent tax on the wholesale sales price. 20 The bill combines the 22 percent rate and the 28 percent rate 21 and imposes the combined 50 percent rate on the wholesale 22 sales price on more products including alternative nicotine 23 products, vapor products, cigars, and snuff. When the tax on 24 the wholesale sales price of any product is imposed in the 25 bill, the bill specifies the resulting amount shall not be 26 below $2.86. Due to the imposition of the 50 percent tax on the 27 wholesale sales price of cigars and snuff, the bill strikes the 28 50 cent taxation on cigars and the $1.19 per ounce tax imposed 29 on snuff. 30 The bill applies the same minimum $2.86 rate upon consumers 31 for the use or storage of tobacco products, alternative 32 nicotine products, and vapor products, if the tax imposed on 33 wholesale sales price tax has not otherwise been paid at the 34 wholesale level. 35 -15- LSB 5801YH (5) 91 jm/jh 15/ 16

H.F. 2406 By imposing new tax rates on alternative nicotine products, 1 vapor products, cigars, and snuff, the inventory tax may be 2 assessed on any nicotine products, vapor products, cigars, and 3 snuff remaining in inventories taxed under the previous tax 4 rate that is equal to the difference between the previous tax 5 rate and the new tax rate. 6 DIVISION II —— CONFORMING CHANGES. The bill make numerous 7 conforming changes by adding alternative nicotine products and 8 vapor products to reflect the changes made by the bill. 9 -16- LSB 5801YH (5) 91 jm/jh 16/ 16