budget · tax policy

Michigan Proposes 57% Wholesale Tax on E‑Cigarettes

Governor Whitmer's FY2027 budget includes 57% tax on vapor and nicotine pouches, part of ~$800M revenue package to stabilize Medicaid funding

Key takeaways

• 57% wholesale tax on e‑cigarettes and nicotine pouches (including brands like Zyn).
• Vapor tax expected to generate approximately $95 million annually.
• Cigarette tax increase: from $2 to $3 per pack (estimated +$232 million/year).
• Total new tobacco/nicotine tax revenue: over $300 million.
• Overall new tax package aimed at generating nearly $800 million to stabilize Medicaid funding.
• Also includes digital advertising tax, online casino/gaming tax hikes, and sports betting tax changes.

Michigan — Governor Gretchen Whitmer has proposed a major tax restructuring for e‑cigarettes and nicotine products in her FY2027 executive budget, as part of a plan to generate nearly $800 million in new annual revenue to stabilize the state's Medicaid program.

The total budget is set at $88.1 billion. State officials cite ongoing fiscal pressure due to federal Medicaid funding adjustments, requiring new revenue sources to fill potential gaps. Medicaid currently covers more than 2.6 million Michigan residents — roughly one‑quarter of the state's population.

Beyond nicotine, the budget includes several measures targeting consumer and digital economy sectors:

• 4.7% tax on digital advertising in Michigan → estimated $282 million/year.
• Higher tax rates for online casinos with annual revenue exceeding $185 million → ~$136 million/year.
• Sports betting: per‑wager tax (first 20M bets at $0.25 each, then $0.50) → ~$39 million/year.
• Elimination of tax deduction for free promotional sports bets → further industry tax increase.

The Whitmer administration frames the package as a "targeted revenue strategy," emphasizing that it does not raise broad‑based personal income or sales taxes, but instead focuses on specific industries: gaming, tobacco, and digital advertising.

However, the proposal has already drawn opposition from the Republican‑controlled state House, which has signaled it will not support any new taxes. Legislative negotiations over e‑cigarette taxes, gaming taxes, and the digital advertising tax are expected in the coming months.

The budget now enters legislative review, and the final tax package remains subject to change.

Source: 2Firsts, February 22, 2026 · compiled from Office of Governor Gretchen Whitmer, Michigan Advance, and Bridge Michigan · Cover image: Governor Gretchen Whitmer / Office of the Governor website