Alaska Lawmakers Send 75% Nicotine Tax Bill to Governor Dunleavy for Action

JUNEAU, Alaska – The Alaska Legislature on May 20, 2026, passed Senate Bill 24, a measure that would impose the state’s first tax on electronic cigarettes and related nicotine products, sending the legislation to Governor Mike Dunleavy for his signature or veto. The bill, which passed the House 24-16 and cleared the Senate with a 15-5 concurrence vote on the final day of the legislative session, introduces a sweeping 75% wholesale excise tax on synthetic nicotine products and nicotine substitutes, including pouches, vapes, and e-cigarettes.

This legislative action arrives four years after Governor Dunleavy vetoed a similar measure in 2022 that proposed a 45% wholesale tax and sought to raise the minimum age for tobacco product purchases from 19 to 21. While the current bill focuses primarily on the tax, a notable structural difference from the 2022 version is the shift towards a retail-level tax for certain e-cigarette products. This change, according to legislative discussions, aims to address the complexities of taxing products assembled by retailers from various components, making it challenging to track all suppliers for a traditional wholesale tax. An amendment during the legislative process also broadened the scope to explicitly include synthetic nicotine products.

Championed by retiring Senate President Gary Stevens, R-Kodiak, the legislation has been framed as a vital step to counteract the tobacco industry’s strategies to attract younger users amidst declining traditional cigarette consumption. However, critics argue that the tax, particularly its significant rate and the manner of its introduction, could undermine public health initiatives and create substantial operational challenges for small and mid-sized businesses.

The imposition of a 75% wholesale excise tax, which appeared through a last-minute amendment, has drawn criticism for receiving insufficient scrutiny and public debate. Opponents, including the Council for Citizens Against Government Waste (CCAGW), contend that such a high tax rate risks making nicotine pouches and other less harmful alternatives more expensive than traditional cigarettes. For adult consumers attempting to transition away from smoking, price is a major factor in product choice. If cigarettes become the more affordable option, the financial incentive to switch to less harmful alternatives diminishes, potentially reversing Alaska’s progress in reducing smoking rates.

From our perspective at C&S Finance Group LLC, the sudden introduction of a significant tax like this, especially on a rapidly evolving product category, presents considerable challenges for businesses. Retailers and distributors of these products will face immediate pressure to adjust pricing, manage inventory, and ensure compliance with a complex new tax structure. The distinction between wholesale and retail-level taxation, coupled with the inclusion of synthetic nicotine products, necessitates a meticulous review of supply chains and sales processes. We’ve seen firsthand how such abrupt regulatory shifts can strain operational resources and impact profitability, requiring businesses to quickly adapt their financial models and compliance frameworks. Our expertise in tax preparation and compliance is precisely geared towards helping companies navigate these intricate regulatory landscapes and mitigate potential financial risks. Businesses needing guidance on this or other tax-related matters can contact C&S Finance Group LLC at csfinancegroup.com.

Public health advocates supporting a veto highlight that nicotine pouches, which do not involve combustion or the inhalation of toxic chemicals, are considered by federal regulators to be 99% less harmful than smoking cigarettes. Taxing these products at a rate that could make them more expensive than cigarettes sends a contradictory signal to consumers and public health efforts. This policy contrasts with federal trends, where the FDA recently authorized the use of four types of flavored vapes, and the federal government continues to impose no excise tax on e-cigarette products.

Governor Dunleavy’s office has declined to comment on his intentions regarding SB 24. However, his recent veto of a state employee pension bill, citing “unresolved legal, tax, administrative and fiscal issues” and long-term unfunded liabilities, indicates a willingness to reject legislation based on concerns about its financial and administrative implications. Businesses dealing with these products will need to closely monitor the Governor’s decision, as it will directly impact their operational costs and market strategies.

The Governor now faces a critical decision that balances public health objectives, fiscal policy, and the economic impact on businesses and consumers. His action on Senate Bill 24 is anticipated to shape the future landscape of nicotine product regulation and taxation in Alaska, with implications for both public health outcomes and the profitability of the state's small and mid-sized businesses.