The term “e-cigarettes” refers to a wide range of products that share the same basic design and generally consist of three main parts: a power source (typically a battery), a heating element containing a wick (to deliver liquid to the heating element), and a cartridge or tank containing liquid solution. Cartridges and liquid are often sold separately from e- cigarette devices containing the battery and heating element. Liquid typically contains nicotine, a solvent (e.g., propylene glycol, glycerin, or both), and flavorings. E-cigarettes heat liquids to deliver aerosol that usually contains nicotine and other chemical substances to the user by inhalation. E-cigarettes come in two main forms: Closed systems that include disposable e-cigarettes or require users to buy e-cigarette components, including the cartridge with liquid, from the same manufacturer or brand. Open systems that enable users to purchase the heating element, battery, tank, and liquid separately and from different manufacturers or brands. Industry experts we interviewed estimated that the size of the U.S. e- cigarette market in 2014 was about $2.5 billion. Although there are no definitive data on the relative proportions of imported and domestically manufactured e-cigarettes, industry experts we interviewed told us that the majority of e-cigarettes sold in the United States are imported from China. The U.S. e-cigarette market has developed rapidly in the last decade. U.S. Customs and Border Protection issued a customs ruling for the classification of e-cigarette imports to the United States as early as 2006. USPTO issued a registration for a trademark applied to e-cigarettes as early as May 2008 and had recorded more than 1,600 U.S. trademark registrations for e-cigarette devices, parts, liquid, and services as of March 2015. Hundreds of e-cigarette companies participate in the U.S. e- cigarette market. Large tobacco companies began entering the U.S. e- cigarette market in 2012 and now manufacture some of the leading closed system e-cigarette brands, according to industry experts we interviewed. Some industry experts we spoke with predict that the U.S. e- cigarette market will continue to grow, although factors such as the extent of federal and state regulation create uncertainty about the rate of growth. E-cigarettes are sold in multiple types of outlets, including traditional retail stores, such as convenience stores and grocery stores, as well as at “vape stores” and over the Internet. According to industry experts, closed system e-cigarette products are mainly sold in traditional retail outlets, while open system e-cigarette products are often sold online and at vape stores. Private companies collect point-of-sale data on the quantities and prices of e-cigarettes sold at traditional retail stores, according to documentation from these companies; however, these data do not cover online sales or “vape store” sales. Financial analysts from one firm estimate that 40 to 60 percent of e-cigarettes are sold online or at vape stores. In 2014, CDC reported a statistically significant increase in the percentage of U.S. adults who had used e-cigarettes in the preceding 30 days, from 1 percent in 2010 to 2.6 percent in 2013. Past-month e- cigarette use was especially prominent among current adult cigarette smokers and grew in this population, at a statistically significant level, from 4.9 percent in 2010 and 2011 to 9.4 percent in 2012 and 2013. Past- month e-cigarette use by former adult cigarette smokers also rose, from 1 percent to 1.3 percent during the same period, although the increase was not statistically significant. The National Youth Tobacco Survey by CDC and FDA showed a statistically significant increase in high school students’ past-month e- cigarette use, from 1.5 percent in 2011 to 13.4 percent in 2014. In addition, the survey found that in 2014, high school students’ past-month e-cigarette use surpassed their use of cigarettes and other tobacco products at a statistically significant level (see fig. 2). The survey further found a statistically significant increase in past-month e-cigarette use among middle school students. In April 2014, FDA issued a proposed rule to deem e-cigarettes and other products meeting the Tobacco Control Act’s definition of “tobacco product” to be subject to the agency’s regulation. FDA received more than 135,000 comments about the proposed deeming rule during the public comment period, which ended in August 2014. FDA announced its intent to issue the final rule in June 2015 in the spring 2015 semiannual regulatory agenda. The final rule had not been issued as of August 2015. The Tobacco Control Act aimed to, among other things, promote cessation to decrease health risks and social costs associated with tobacco-related diseases. According to the act, FDA can, by regulation, require restrictions on the sale, distribution, advertising, and promotion of a tobacco product if the agency determines that the proposed regulation is appropriate for the protection of public health, based on a consideration of the risks and benefits to the population as a whole, including users and nonusers of tobacco products. In the act, Congress recognized that virtually all new users of tobacco products are under the age of 18. In the proposed deeming rule, FDA stated that it was researching the effect of e-cigarette use on public health. FDA noted that e-cigarettes could have a positive net impact if using them resulted in minimal initiation by children and adolescents and in significant numbers of smokers’ quitting. The FDA also noted that e-cigarette use could have a negative net impact if it resulted in significant initiation by young people, minimal quitting, or significant dual use of combustible products, such as cigarettes, and noncombustible products, such as e-cigarettes. The IRC, which defines tobacco products subject to FET and sets rates of tax, does not specifically define or list a tax rate for e-cigarettes. However, two states—Minnesota and North Carolina—have imposed an excise tax on e-cigarettes or vapor products containing nicotine. The Minnesota Department of Revenue issued a notice in 2012 stating its position that e-cigarettes are subject to the tobacco products tax; the current tax rate is 95 percent of the wholesale price of the nicotine- containing liquid or, if the liquid cannot be sold separately, of the complete e-cigarette. North Carolina has taxed vapor products at 5 cents per milliliter of nicotine-containing liquid or other material since June 2015. In addition, at least 18 states and the District of Columbia have proposed legislation to tax e-cigarettes, vapor products, nicotine vapor products, or e-cigarette cartridges since 2013. For example, a bill in Maine proposed to include e-cigarettes in its definition of cigarettes and to apply the same tax rate to cigarettes and e-cigarettes, and a bill in Montana proposed a tax on vapor products, such as e-cigarettes, that would be partially based on the weight in milligrams of the nicotine present in the product. As of January 2015, three countries—Italy, Portugal, and South Korea— imposed national-level taxes on e-cigarettes that contain nicotine, and each of these countries applies its tax to nicotine-containing e-cigarette liquid, according to an industry expert. In addition, according to research by the Law Library of Congress, Serbia recently enacted legislation to introduce an excise tax on e-cigarette liquid, which went into effect in August 2015. Our analysis of Treasury data on cigarette FET revenue found no current evidence that e-cigarette use has affected the historical decreasing trend in FET collections over the past 6 years. We used a time series regression to determine the change in cigarette FET revenue from April 2009, when the last increase in FET on cigarettes and other tobacco products became effective, through December 2014. Variables in the model control for (1) historical decreases in cigarette FET revenue over the last 6 years; (2) quantities of cigars, pipe tobacco, and roll-your-own tobacco removed from domestic factories or released from customs custody for distribution in the United States; and (3) monthly seasonality effect. Our model tests for the inclusion of e-cigarettes at different points in time and tests for any significant changes from the historical trend. We found no significant evidence that e-cigarettes have decreased the collection of FET revenue from cigarettes at a rate greater than the 6-year historical trend. Specifically, we found that, when other variables in the model are held constant, the 6-year historical trend of cigarette FET revenue decreased at a rate between $4.4 million and $5.5 million per month (see fig. 3). However, we found no significant evidence of a decrease in FET revenue from cigarettes at a rate greater than the 6-year historical trend during the time frame when e-cigarettes have been on the U.S. market. We estimate that cigarette FET revenue would need to decrease by an additional $2 million to $3 million per month to signal a significant effect from e-cigarettes. Several factors may explain why our analysis did not detect an effect of e- cigarette use on cigarette FET revenue. First, the e-cigarette market— estimated at $2.5 billion in sales in 2014—is relatively small compared with the cigarette market, which had $80 billion in sales in the same year. As a result, without a substantial increase in the e-cigarette market, any effect on the cigarette market would be too minor to significantly affect cigarette FET revenue. Second, comprehensive and reliable data on e- cigarette sales and prices—which would enable us to corroborate the size of the e-cigarette market and accurately identify when it became significant—are not available.