Sponsors (3)
The bill lowers the federal excise tax and clarifies the tax definition for waterpipe tobacco—benefiting manufacturers and likely reducing retail prices—while trading off reduced federal revenue, potential increases in tobacco use and related health risks, and some implementation/compliance costs.
Manufacturers and importers of waterpipe (hookah) tobacco will pay a lower federal excise tax rate per pound, reducing their tax burden and likely translating into modestly lower retail prices for hookah consumers.
Producers, importers, and the IRS get a clear statutory definition of 'waterpipe tobacco,' improving tax administration, reducing legal ambiguity, and increasing compliance certainty.
Consumers may face increased public-health risks because the lower excise tax makes waterpipe tobacco more affordable, potentially increasing consumption.
Federal excise tax receipts will fall per pound of waterpipe tobacco taxed compared with prior treatment as pipe tobacco, reducing federal revenue.
Manufacturers and importers (and related federal staff) may face one-time and ongoing compliance costs for re-labeling, product classification, and implementation to conform to the new definition.
Based on analysis of 2 sections of legislative text.
Establishes a separate federal excise tax for waterpipe tobacco at $0.5662/lb, distinct from pipe tobacco taxed at $2.8311/lb.
Introduced July 15, 2025 by Darrell Issa · Last progress July 15, 2025
Creates a separate federal excise tax category and lower tax rate for tobacco intended for use in waterpipes (hookah/shisha/etc.). It keeps the existing pipe tobacco rate for other pipe tobacco but sets waterpipe tobacco at $0.5662 per pound (pro rata for fractional pounds). The law also defines “waterpipe tobacco” with examples and applies the change to tobacco manufactured or imported after enactment.