As Nicotine Pouch Market Grows, States Face Trade-Off Between Tax Revenue and Harm Reduction

Oral nicotine pouches have rapidly become a popular option for consumers who want nicotine without the harmful combustion and chemicals of traditional cigarettes. As these alternative nicotine products (ANPs) successfully draw smokers to non-combustible nicotine consumption, many states have scrambled to incorporate these new products into their tax A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. regimes.

States face an interesting trade-off. Decades of shrinking cigarette consumption decreased the tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. for cigarette taxes. States face the inevitable reality that the once lucrative stream of cigarette tax revenue will dry up. This is an enormous win for public health, but the lack of cigarette tax revenue creates a revenue crater within state budgets. Taxing ANP can fill some of that revenue void, but higher taxes on ANP slow the move away from combustible cigarettes, preserving tax revenue but harming public health.

As of September 2026, 20 states and the District of Columbia have already incorporated nicotine pouches into their tax systems. The most common method for taxing nicotine pouches has been to lump nicotine pouches into a state's broad, existing tax levied on "Other Tobacco Products" (OTP). This is a mistake.

Oral nicotine pouches are simply not like other products typically placed in the OTP category, such as cigars, loose leaf tobacco, and snuff. In fact, most modern oral pouches don't contain tobacco at all. They use synthetic or extracted nicotine.

Oral pouches are less harmful than many or all of the other products in most states' OTP category. By treating less harmful products the same as the rest, these states undermine the health benefits of alternative products that satisfy the wants of consumers with substantially less danger to individual and public health.

A better tax policy would be to tax oral pouches with their own specific rate. An ad quantum tax levied per can or per ounce is a better tax base than an ad valorem tax based on price. States that embrace harm reduction can generate the necessary revenues while enabling growth and health benefits from innovative products.

Even with less than half of states incorporating nicotine pouches into their tax regime, the spectrum of tax treatments is already quite wide. To compare rates across states, we estimate the taxes due on a sample product-one can of 15 pouches sold for $4 wholesale and $6 at retail.

The states with the highest tax on nicotine pouches are Minnesota and Washington at $3.80 on a sample product from their 95 percent wholesale tax. They are followed by Maine at $3.54 from its weight-based tax with a one-ounce minimum, then Rhode Island at $3.20 from its 80 percent wholesale tax, and Vermont at $3.08 from its weight-based tax with a 1.2-ounce minimum.

North Carolina has the lowest tax on nicotine pouches at $0.005 per pouch, or $0.10 per standard can of 20. It is followed by Indiana at $0.13 on a sample product from a $0.50 per ounce tax with no minimum weight, Oregon at $0.65 per standard can, and Louisiana and Nebraska, which both tax the sample product at $0.80 from a 20 percent wholesale tax.

State Nicotine Pouch Taxes

Tax rate and estimated effective tax on a sample product by state

Recent Notable Changes

• Illinois expanded its tobacco products tax to cover nicotine products like pouches beginning July 1, 2025, while also tripling the rate from 15 percent to 45 percent wholesale.
• Indiana increased its tax on alternative nicotine products like pouches from $0.40 per ounce to $0.50 per ounce effective July 1, 2025.
• Maine increased its tax on smokeless tobacco, which the state includes nicotine pouches within, from $2.02 per ounce to $3.54 per ounce effective January 5, 2026.
• Nebraska expanded its tobacco products tax to cover alternative nicotine products at the existing rate of 20 percent wholesale effective January 1, 2026.
• New York extended its tobacco products tax to cover alternative nicotine products like pouches at the existing rate of 20 percent wholesale effective September 1, 2026.
• North Carolina expanded its tobacco products tax to cover alternative nicotine products at a rate of $0.010 per standard can effective July 1, 2025.
• Oregon created a new tax on oral nicotine products effective January 1, 2026, at a rate of $0.65 per standard can.
• Rhode Island expanded its tobacco products tax to include nicotine products like pouches effective October 1, 2025, at the existing rate of 80 percent wholesale.
• Utah changed its tax on nicotine pouches effective July 1, 2026, from $1.83 per ounce to $1.00 per standard can.
• Washington expanded its tobacco product tax to cover nicotine products like oral pouches effective January 1, 2026, at the existing rate of 95 percent wholesale.

The wide range of tax treatment of oral pouches is wider than the state excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. treatment of combustible cigarettes. The cigarette tax jurisdictional disparities incentivize a great deal of smuggling and cross-border trade. There is no reason to believe oral nicotine pouches would be any different.

Take Washington, for example. Consumers in Washington would save approximately $3.15 in taxes per sample can of pouches if they crossed the border into Oregon to do their shopping; or those consumers could avoid excise taxes entirely by shopping in Idaho. These savings inevitably spur behavioral patterns and often even lucrative illicit enterprises arbitraging the differentials.

As these products become more popular, more states are expected to incorporate them into their tax framework. Iowa has already established a $0.05 per can tax on alternative nicotine pouches set to go into effect January 2027. Policymakers should do so in a principled way that embraces, not undermines, the harm reduction benefits from alternative nicotine products.

Harm reduction is pragmatic. It focuses on the more viable solution of reducing harms rather than eliminating them entirely (through, e.g., prohibitions or excessive taxation).

Taxes on alternative products should incentivize smokers to switch to the less harmful options, with reduced rates in proportion to the reduced harms relative to combustible cigarettes. It is the harms that ostensibly justify levying the excise tax at all, so the tax rates should align with the associated harms.

Oral nicotine pouches are drastically less harmful than combustible cigarettes. Nicotine is not itself carcinogenic; it is the other chemicals and combustion from traditional cigarettes that do most of the harm. Alternative nicotine products play a vital role in effectively facilitating smoking cessation with a less harmful method of consuming nicotine.

Tax Foundation analysis has established a framework for taxing less harmful alternative products according to their relative potential harms. Since oral nicotine pouches are substantially less harmful than combustible cigarettes, excise taxes on pouches should be limited to a fraction of the taxes on cigarettes.

By reducing the tax relative to cigarettes, price differentials encourage smokers to switch to the less harmful option. Moderate taxes also help to prevent distortions from cross-border trade and allow the legal (taxed) market to effectively compete with the untaxed illicit markets.

Many states undermine the potential of these less dangerous alternative nicotine products by taxing them in excess of their relative harms.

States that have yet to incorporate nicotine pouches into their tax schemes do not necessarily need to do so. Not taxing the less harmful products maximizes the tax differential that encourages smokers to switch and thus maximizes the harms reduced. But with smoking rates continuing to steadily decline, states are likely to want to make up for the lost cigarette tax revenue by taxing new alternative nicotine products like pouches. And if they must do so, then they should use principled taxes that encourage smokers to switch to less harmful alternatives.