Michigan Plans To Impose A 57% Wholesale Tax On Vapes

Michigan Governor Gretchen Whitmer proposed in the FY2027 budget proposal to impose a 57% wholesale tax on vapes and nicotine products as part of a total of approximately $800 million in additional revenue plan to stabilize Medicaid funding.

What are core contents
1. Plan to impose a 57% wholesale tax on vapes and nicotine containing products.
2. The vape tax is expected to increase revenue by approximately $95 million annually.
3. The cigarette tax has been increased from $2 per pack to $3.
4. The overall new tax target is close to 800 million US dollars.
5. The funds are mainly used to stabilize the Medicaid program.

Michigan Governor Gretchen Whitmer proposed in her FY2027 administrative budget proposal to implement significant tax adjustments on vapes and nicotine products as a core component of a fiscal plan that is expected to add nearly $800 million in revenue annually to stabilize the funding source for the state’s Medicaid program.
The total budget size is 88.1 billion US dollars. The state government stated that with the adjustment of the Medicaid funding mechanism at the federal level, state finances are facing sustained pressure and must seek new sources of income to make up for potential gaps. Medicaid currently covers over 2.6 million Michigan residents, accounting for about a quarter of the state’s population.
In terms of tobacco and nicotine products, the budget proposal proposes a 57% wholesale tax on vape products and nicotine containing products (including brands such as Zyn), which is expected to generate approximately $95 million in revenue annually. At the same time, the wholesale tax on cigarettes will increase from $2 per pack to $3, with an expected increase of approximately $232 million in revenue. The overall tobacco and nicotine related tax adjustments are expected to contribute a total of over $300 million.

In addition to nicotine products, the budget also includes multiple tax measures targeting the consumer and digital economy sectors. Specifically, it includes:
• Imposing a 4.7% tax rate on digital advertising placed in Michigan is expected to increase revenue by approximately $282 million annually.
• Raise tax rates on operators with annual online casino revenue exceeding $185 million, with an expected increase of approximately $136 million.
• Implement a taxation mechanism based on the number of bets placed on sports betting platforms, with the first 20 million bets being taxed at $0.25 per bet and the excess at $0.50 per bet, resulting in an estimated increase of approximately $39 million.
• Cancel the tax deduction for free promotional bets on sports betting, further increasing the actual tax burden of the gambling industry.

The state government directly links the above tax plan to the stability of medical insurance, emphasizing that the newly added revenue will be used to maintain the sustainability of Medicaid, rather than reducing coverage or lowering medical service payment standards. State budget officials have stated that in the absence of additional revenue, the state government may face pressure to reduce eligibility, decrease services, or lower payment standards for healthcare institutions.
The Whitmer government described the plan as a “targeted taxation” strategy, emphasizing that it did not propose a comprehensive increase in personal income tax or sales tax, but focused on specific industries such as gambling, tobacco, and digital advertising.
However, the proposal has been publicly opposed by the Republican controlled state House of Representatives. The House of Representatives has stated that it does not support any additional tax measures. It is expected that legislative negotiations on vape tax, gambling tax, and digital advertising tax will begin in the coming months.
The budget is currently in the legislative review stage, and there are still variables in the final tax plan.

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Reference: Gov. Whitmer’s FY27 Budget Delivers on Promises to Improve Literacy, Save Michiganders Money, Protect Medicaid, and Fix Roads