- Associated Press - Tuesday, May 20, 2014

RALEIGH, N.C. (AP) - The North Carolina House tentatively agreed Tuesday to a wide-ranging tax bill that caps municipal business privilege taxes and places an excise tax on electronic cigarettes that’s considered lower than the levy on traditional cigarettes.

The legislation covered more than 15 categories, but the provisions covering e-cigarettes and the power of local governments to tax drew most of the floor debate. The e-cigarette tax would apply to cartridges containing nicotine-filled liquid that are inserted into holders and heated to create a vapor which the user inhales.

An effort to delete the tax from the bill was pushed back largely by Republicans before the full measure was approved by a vote of 83-35. The bill’s chief proponent said the tobacco industry - in particular Winston-Salem-based Reynolds American Inc. - wants the new tax. She suggested the company would soon announce a new e-cigarette product and a factory opening in North Carolina to manufacture them, possibly creating up to 300 jobs.

“Without passing this in this bill, we are not able to collect that additional excise tax,” said Rep. Julia Howard, R-Davie, during the debate. “We believe that it’s new jobs … which we welcome.”

Rep. Becky Carney, D-Mecklenburg, sought to delete the e-cigarette portion because she said the chamber was acting hastily in creating a tax that appears to be much less than one for a pack of tobacco cigarettes. The tax rate would be 5 cents per milliliter of the liquid used in e-cigarette cartridges. A Reynolds electronic cigarette carries a 0.5 milliliter cartridge. That’s equivalent in puff counts to a pack of tobacco cigarettes, taxed at 45 cents.

“Five cents - it’s a little bit of revenue but have you really stopped and listened to what the impact is going to be?” Carney asked.

Her amendment was defeated, largely along party lines. One Republican, Rep. Larry Pittman, R-Cabarrus, said Reynolds‘ request should be considered. “We’ve kicked the tobacco industry long enough, and maybe it’s time to give them a little deference,” he said.

“I think we should encourage people to use a device that is not on fire,” said Rep. Andy Wells, R-Catawba. The bill was amended to make clear e-cigarettes would be labeled a “tobacco product,” in keeping with a 2013 law preventing their sale to minors.

Electronic cigarettes are billed as a way for smokers to avoid cancer-causing agents in tobacco. The U.S. Food and Drug Administration is developing rules for the product, and it’s still unclear whether e-cigarettes can negatively affect a person’s health, which may warrant a higher tax, Carney said. Legislators in North Carolina, the nation’s flue-cured tobacco leader, have been averse historically to increasing cigarette taxes.

Meanwhile, lawmakers who favor a streamlined local business privilege tax say the power of municipalities to initiate local taxes is too broad and arbitrary and subject to abuse. But the limit would impose a cost on cities.

By limiting the tax to no more than $100 per year per business within a municipality’s boundaries, hundreds of cities could lose as much as $25 million in the year after the cap taxes effect in July 2015, according to legislative researchers. A handful of cities, led by Charlotte, could lose about half of that amount.

That’s unfair and lawmakers should find a way to make up for the lost funds, said Rep. Paul Luebke, D-Durham. Discussions are continuing about how to help cities during the transition, Howard said. The bill will head to the Senate after a final House vote Wednesday.

Rep. William Brawley, R-Mecklenburg, said Charlotte city government has collected privilege taxes from hundreds of businesses outside of its city limits within Mecklenburg County and in a majority of other North Carolina counties.