alternative nicotine; vapor products; tax.

HB4032 - 572R - I Ver

REFERENCE TITLE:
alternative nicotine; vapor products; tax.

State of Arizona

House of Representatives

Fifty-seventh Legislature

Second Regular Session

2026

HB 4032

Introduced by

Representatives
Volk: Contreras L, Hernandez A, Hernandez C, Tsosie

AN
ACT

amending sections 8-1181 and 15-249.14,
Arizona Revised Statutes; amending title 15, chapter 2, article 2, Arizona
Revised Statutes, by adding section 15-249.20; amending section 36-601.01,
Arizona Revised Statutes; amending title 41, chapter 14, article 5, Arizona
Revised Statutes, by adding section 41-2023; amending title 42, chapter
5, Arizona Revised Statutes, by adding article 11; relating to excise tax.

(TEXT OF BILL BEGINS ON NEXT PAGE)

Be it enacted by the Legislature of the State of Arizona:

Section 1. Subject to the requirements of
article IV, part 1, section 1, Constitution of Arizona, section 8-1181,
Arizona Revised Statutes, is amended to read:

START_STATUTE
8-1181.

Early childhood development and health fund; exemption

A. The early childhood development and health fund
is established consisting of
funds
monies

transferred pursuant to subsection D
;

of this section,
federal, state, local and private
funds
monies
accepted by the board
pursuant to
section
8-1182
,
;
monies deposited
pursuant
to section 42-
5503
and any monies
appropriated to the board by the legislature.� The board shall administer the
fund.

B. The early childhood development and health fund
is divided into the following accounts:

1.
The program account
.
,

2.
The administrative costs
account
.
,

3.
The private gifts account
.
,

4.
The grant monies account
.

and

5.
The legislative
appropriations account.

C. Monies in the program, administrative costs,
private gifts and grant monies accounts of the fund are not subject to
legislative appropriation and are exempt from the provisions of section 35-190
relating to lapsing of appropriations.

D. Ninety percent of the monies deposited
into
in
the early childhood development
and health fund pursuant to section
42-3373

42-3372
shall be deposited
into
in
the program account and ten percent of the monies shall be
deposited
into
in
the administrative
costs account.� Administrative costs of the board, including staff
compensation, may only be paid from the administrative costs
account.
Funds

monies
may
be transferred by the board from the administrative costs account to the
program account, but
funds

monies
may
not be transferred from the program account to the administrative costs
account.
Funds

monies
may
be transferred by the board from the private gifts account and the grant monies
account to the administrative costs account to cover the administrative costs
of programs and activities undertaken using gift or grant monies.

E. The board may invest any unexpended monies in the
fund as provided in title 35, chapter 2. Interest and other income from
investments of monies in any account shall be credited to that account except
as otherwise provided by law.
END_STATUTE

Sec. 2. Section 15-249.14, Arizona Revised Statutes, is amended to read:

START_STATUTE
15-249.14.

Ninth grade on-track grant program; school requirements; fund;
exemption

A. The ninth grade on-track
grant program is established in the department of education. The
department shall administer the grant program and may adopt rules, policies and
procedures to carry out the purposes of this section.� The department shall:

1. Establish procedures for each of the following:

(a) A school district or charter school to apply for
a grant.

(b) The department to evaluate the grant
applications.

(c) The department to award grants to eligible
school districts and charter schools for a term of more than one year and not
more than five years.�

2. The department shall ensure that the grant
application and reporting requirements do not impose an undue burden on the
school districts and charter schools.

3. Require each grant application to be approved by
a majority vote of the school district governing board or charter school
governing body, whichever applies, before the school district or charter school
may submit the application to the department.

4. Award grants on a first-come, first-served
basis to each eligible school district or charter school in an amount that is
equal to at least $150 for each ninth grade student who is enrolled or
projected to be enrolled in the school district or charter school during the
term of the grant, except that the total number of ninth grade students who may
be funded pursuant to this paragraph may not exceed:

(a) For grants that are awarded in fiscal year
2025-2026, twenty-two thousand six hundred fifty.

(b) For grants that are awarded beginning in fiscal
year 2026-2027, zero.

5. Provide administrative support to grant
recipients for implementing ninth grade on-track programs and services
pursuant to this section.

B. Each school district or charter school that
receives a grant award pursuant to subsection A of this section shall:

1. Use the monies to establish and expand programs,
opportunities and strategies that help ninth grade students complete sufficient
credits to be on track to graduate in four years, including all of the
following:

(a) Providing real-time, accessibly formatted data
regarding student grades, attendance and behavior to grade nine teachers and
support staff.

(b) Allocating time for grade nine teachers and
support staff to meet during the school day to review data and develop
intervention strategies for at-risk students in grade nine.� The school
district or charter school shall maintain records of meetings held pursuant to
this subdivision and provide those records to the department on request.�

(c) Providing timely, actionable data for grade nine
teachers, including providing access to data and developing teachers' data
literacy.

(d) Creating highly effective grade nine success
teams.

(e) Establishing foundational structures and
conditions for grade nine on-track work.

(f) Establishing systems and processes to optimize
operations of the grade nine success team.

(g) Systematizing grade nine success by recruiting
and engaging all stakeholders.

(h) Creating and executing proactive and data-driven
intervention and referral systems and processes.

(i) Implementing proactive and high-leverage
intervention strategies.

(j) Creating and executing a comprehensive system of
grade nine transition supports.

(k) Creating a personalized and supportive
environment for students in grade nine.

(l) Providing early preparation for high school
entry.

(m) Providing proactive supports to grade nine
teachers and support staff.

(n) Implementing high quality instructional
strategies and fair grading practices.

(o) Developing learning-centered professional
communities and student-centered learning communities.

(p) Establishing a partnership with an organization
that has at least five years of experience providing ninth grade on-track
programs and services to school districts and charter schools to increase grade
nine on-track rates.

2. On request from the department, provide any
information necessary to demonstrate compliance with this section.

C. A school district or charter school that receives
monies pursuant to this section shall supplement and not supplant programs,
opportunities and strategies that help ninth grade students complete sufficient
credits to be on track to graduate in four years.

D. For the purposes of this section, a student is
deemed on track to graduate in four years if the student does both of the
following:

1. Completes at least twenty-five percent of
the credits required for the student to graduate from high school by the end of
ninth grade.

2. Does not earn more than one letter grade of F, or
the equivalent, in ninth grade.

E. The ninth grade on-track grant program fund
is established consisting of
monies deposited
pursuant to section 42-
5503,
legislative
appropriations, gifts, grants and donations. The department shall
administer the fund.� Monies in the fund are continuously appropriated and are
exempt from the provisions of section 35-190 relating to lapsing of
appropriations.� The department shall use monies in the fund to provide grants
pursuant to subsection A of this section.
END_STATUTE

Sec. 3. Title 15, chapter 2, article 2, Arizona
Revised Statutes, is amended by adding section 15-249.20, to read:

START_STATUTE
15-249.20.

Out-of-school time program fund

A. The out-of-school time
program fund is established consisting of monies deposited pursuant to section
42-5503. The department shall administer the fund.

B. Monies in the fund are
continuously appropriated and are exempt from the provisions of section 35-190
relating to lapsing of appropriations.

C. The department shall use the
monies to support facility-based,� out-of-school time program
providers that provide proven and tested recreational, educational and
character-building programs for school-age children.�
END_STATUTE

Sec. 4. Subject to the requirements of article
IV, part 1, section 1, Constitution of Arizona, section 36-601.01, Arizona
Revised Statutes, is amended to read:

START_STATUTE
36-601.01.

Smoke-free Arizona act

A. Definitions. The following words and phrases,
whenever used in this section, shall be construed as defined in this section:

1. "Employee" means any person who
performs any service on a full-time, part-time or contracted basis
whether or not the person is denominated an employee, independent contractor or
otherwise and whether or not the person is compensated or is a volunteer.

2. "Employer" means a person, business,
partnership, association, the state of Arizona and its political subdivisions,
corporations, including a municipal corporations, trust, or non-profit entity
that employs the services of one or more individual persons.

3. "Enclosed area" means all space between
a floor and ceiling that is enclosed on all sides by permanent or temporary
walls or windows (exclusive of doorways), which extend from the floor to the
ceiling.� Enclosed area includes a reasonable distance from any entrances,
windows and ventilation systems so that persons entering or leaving the
building or facility shall not be subjected to breathing tobacco smoke and so
that tobacco smoke does not enter the building or facility through entrances,
windows, ventilation systems or any other means.

4. "Health care facility" means any
enclosed area utilized by any health care institution licensed according to
title 36 chapter 4, chapter 6
,
article 7, or chapter 17,
or any health care professional licensed according to title 32
,

chapters 7, 8, 11, 13, 14, 15, 15.1, 16, 17, 18, 19, 19.1, 21, 25, 28, 29, 33,
34, 35, 39, 41
,
or 42.

5. "Person" means an individual,
partnership, corporation, limited liability company, entity, association,
governmental subdivision or unit of a governmental subdivision, or a public or
private organization of any character.

6. "Physically separated" means all space
between a floor and ceiling which is enclosed on all sides by solid walls or
windows (exclusive of door or passageway) and independently ventilated from
smoke-free areas, so that air within permitted smoking areas does not
drift or get vented into smoke-free areas.

7. "Places of employment" means an
enclosed area under the control of a public or private employer that employees
normally frequent during the course of employment, including office buildings,
work areas, auditoriums, employee lounges, restrooms, conference rooms, meeting
rooms, classrooms, cafeterias, hallways, stairs, elevators, health care
facilities, private offices and vehicles owned and operated by the employer
during working hours when the vehicle is occupied by more than one person.� A
private residence is not a "place of employment" unless it is used as
a child care, adult day care, or health care facility.

8. "Veteran and fraternal clubs" means a
club as defined in
A.R.S. 4-101(7)(a)(b) or (c)
Section 4-101, paragraph 8, subdivision (
a
), (
b
) or (
c
)
.

9. "Public place" means any enclosed area
to which the public is invited or in which the public is permitted, including
airports, banks, bars, common areas of apartment buildings, condominiums or
other multifamily housing facilities, educational facilities, entertainment
facilities or venues, health care facilities, hotel and motel common areas,
laundromats, public transportation facilities, reception areas, restaurants,
retail food production and marketing establishments, retail service
establishments, retail stores, shopping malls, sports facilities, theaters, and
waiting rooms.� A private residence is not a "public place" unless it
is used as a child care, adult day care, or health care facility.

10. "Retail tobacco store" means a retail
store that derives the majority of its sales from tobacco products and
accessories.

11. "Smoking" means inhaling, exhaling,
burning, or carrying or possessing any lighted tobacco product, including
cigars, cigarettes, pipe tobacco and any other lighted tobacco product.

12. "Sports facilities" means enclosed
areas of sports pavilions, stadiums, gymnasiums, health spas, boxing arenas,
swimming pools, roller and ice rinks, billiard halls, bowling alleys, and other
similar places where members of the general public assemble to engage in
physical exercise, participate in athletic competition, or witness sporting
events.

B. Smoking is prohibited in all public places and
places of employment within the state of Arizona, except the following:

1. Private residences, except when used as a
licensed child care, adult day care, or health care facility.

2. Hotel and motel rooms that are rented to guests
and are designated as smoking rooms; provided, however, that not more than
fifty percent of rooms rented to guests in a hotel or motel are so designated.

3. Retail tobacco stores that are physically
separated so that smoke from retail tobacco stores does not infiltrate into
areas where smoking is prohibited under the provisions of this section.

4. Veterans and fraternal clubs when they are not
open to the general public.

5. Smoking when associated with a religious ceremony
practiced pursuant to the American Indian religious freedom act of 1978.

6. Outdoor patios so long as tobacco smoke does not
enter areas where smoking is prohibited through entrances, windows, ventilation
systems, or other means.

7. A theatrical performance upon a stage or in the
course of a film or television production if the smoking is part of the
performance or production.

C. The prohibition on smoking in places of
employment shall be communicated to all existing employees by the effective
date of this section and to all prospective employees upon their application
for employment.

D. Notwithstanding any other provision of this
section, an owner, operator, manager, or other person or entity in control of
an establishment, facility, or outdoor area may declare that entire
establishment, facility, or outdoor area as a nonsmoking place.

E. Posting of signs and ashtray removal.

1. "No smoking" signs or the international
"no smoking" symbol (consisting of a pictorial representation of a
burning cigarette enclosed in a red circle with a red bar across it) shall be
clearly and conspicuously posted by the owner, operator, manager, or other
person in control of that place identifying where smoking is prohibited by this
section and where complaints regarding violations may be registered.

2. Every public place and place of employment where
smoking is prohibited by this section shall have posted at every entrance a
conspicuous sign clearly stating that smoking is prohibited.

3. All ashtrays shall be removed from any area where
smoking is prohibited by this section by the owner, operator, manager, or other
person having control of the area.

F. No employer may discharge or retaliate against an
employee because that employee exercises any rights afforded by this section or
reports or attempts to prosecute a violation of this section.

G. The law shall be implemented and enforced by the
department of health services as follows:

1. The department shall design and implement a
program, including the establishment of an internet website, to educate the
public regarding the provisions of this law.

2. The department shall inform persons who own,
manage, operate or otherwise control a public place or place of employment of
the requirements of this law and how to comply with its provisions including
making information available and providing a toll-free telephone number and
e-mail address to be used exclusively for this purpose.

3. Any member of the public may report a violation
of this law to the department.� The department shall accept oral and written
reports of violation and establish an e-mail address(es) and toll-free
telephone number(s) to be used exclusively for the purpose of reporting
violations.� A person shall not be required to disclose the person's identity
when reporting a violation.

4. If the department has reason to believe a
violation of this law exists, the department may enter upon and into any public
place or place of employment for purposes of determining compliance with this
law.� However, the department may inspect public places where food or alcohol
is served at any time to determine compliance with this law.

5. If the department determines that a violation of
this law exists at a public place or place of employment, the department shall
issue a notice of violation to the person who owns, manages, operates or
otherwise controls the public place or place of employment. The
notice shall include the nature of each violation, date and time each violation
occurred, and department contact person.

6. The department shall impose a civil penalty on
the person in an amount of not less than $100, but not more than $500 for each
violation.� In considering whether to impose a fine and the amount of the fine,
the department may consider whether the person has been cited previously and
what efforts the person has taken to prevent or cure the violation including
reporting the violation or taking action under subsection J.� Each day that a
violation occurs constitutes a separate violation.� The director may issue a
notice that includes the proposed amount of the civil penalty assessment.� A
person may appeal the assessment of a civil penalty by requesting a
hearing. If a person requests a hearing to appeal an assessment, the
director shall not take further action to enforce and collect the assessment
until the hearing process is complete. The director shall impose a
civil penalty only for those days on which the violation has been documented by
the department.

7. If a civil penalty imposed by this section is not
paid, the attorney general or a county attorney shall file an action to collect
the civil penalty in a justice court or the superior court in the county in
which the violation occurred.

8. The department may apply for injunctive relief to enforce
these provisions in the superior court in the county in which the violation
occurred.� The court may impose appropriate injunctive relief and impose a
penalty of not less than $100 but not more than $500 for each violation. Each
day that a violation occurs constitutes a separate violation.� If the superior
court finds the violations are willful or evidence a pattern of noncompliance,
the court may impose a fine up to $5000 per violation.

9. The department may contract with a third party to
determine compliance with this law.

10. The department may delegate to a state agency or
political subdivision of this state any functions, powers or duties under this
law.

11. The director of the department may promulgate
rules for the implementation and enforcement of this law.� The department is
exempt from the rulemaking procedures in
A.R.S. �
title
41, chapter 6 except the department shall publish draft rules and thereafter
take public input including hold at least two public hearings prior to
implementing the rules. This exemption expires May 1, 2007.

H. Beginning on June 1, 2008 and every other June 1
thereafter, the director of the Arizona department of health services shall
issue a report analyzing its activities to enforce this law, including the
activities of all of the state agencies or political subdivisions to whom the
department has delegated responsibility under this law.

I. An owner, manager, operator or employee of place
regulated by this law shall inform any person who is smoking in violation of
this law that smoking is illegal and request that the illegal smoking stop
immediately.

J. This law does not create any new private right of
action nor does it extinguish any existing common law causes of action.

K. A person who smokes where smoking is prohibited
is guilty of a petty offense with a fine of not less than
fifty
dollars

$50
and not more than
three
hundred dollars

$300
.

L. Smoke-free Arizona fund

1. The smoke-free Arizona fund is established
consisting of all revenues deposited in the fund pursuant to
�42-3251.02

sections 42-3251.02 and
42-
5503
and interest earned on those monies. The
Arizona department of health services shall administer the fund. On
notice from the department, the state treasurer shall invest and divest monies
in the fund as provided by
�35-313

section
35-313
and monies earned from investment shall be credited to the
fund.

2. All money in the smoke-free Arizona fund shall be
used to enforce the provisions of this section provided however that if there
is money remaining after the department has met its enforcement obligations,
that remaining money shall be deposited in the tobacco products tax fund and
used for education programs to reduce and eliminate tobacco use and for no
other purpose.

3. Monies in this
fund are continuously appropriated, are not subject to further approval, do not
revert to the general fund and are exempt from the provisions of
�36-190

section 35-190
relating to the lapsing of
appropriations.

M. This section does not prevent a political
subdivision of the state from adopting ordinances or regulations that are more
restrictive than this section nor does this section repeal any existing
ordinance or regulation that is more restrictive than this section.

N. Tribal sovereignty � this section has no
application on Indian reservations as defined in
ARS 42-3301(2)

section 42-3301
.
END_STATUTE

Sec. 5. Title 41, chapter 14, article 5,
Arizona Revised Statutes, is amended by adding section 41-2023, to read:

START_STATUTE
41-2023.

Early intervention support fund; exemption

A. The early intervention support
fund is established consisting of monies deposited pursuant to section 42-
5503. The department shall administer the fund.

B. Monies in the fund are
continuously appropriated and are exempt from the provisions of section 35-190
relating to lapsing of appropriations.

C. Monies in the fund may be used for
early intervention programs and services for infants and toddlers with or at
risk of developmental delays and their families in accordance with Public Law
99-457 (20 United States Code chapter 33, subchapter iv, part c).

END_STATUTE

Sec. 6. Title 42, chapter 5, Arizona Revised
Statutes, is amended by adding article 11, to read:

ARTICLE 11. VAPOR PRODUCTS AND
alternative

NICOTINE PRODUCTS

START_STATUTE
42-5501.

Definitions

In this article,
unless the context otherwise requires:

1. "alternative
Nicotine Product":

(
a
) Means any noncombustible product that contains nicotine
from any source and that is intended for human consumption, whether chewed,
absorbed, dissolved, ingested or consumed by any other means.

(
b
) Does not include:

(
i
) A tobacco product as defined in section 42-3001.

(
ii
) A vapor product.

(
iii
) any Drug, device or combination product authorized for
sale by the United States food and drug administration, as those terms are
defined in the federal food, drug, and cosmetic act (52 Stat. 1040; 21 United
States code section 321) or the regulations adopted pursuant to the federal
food, drug, and cosmetic act.

2. "Consumer":

(
a
) means A person in this state that purchases any
alternative nicotine product or vapor product subject to the tax imposed by
this article.

(
b
) Does not include a distributor intending
to sell or distribute the nicotine product or alternative vapor product, a
retailer or a wholesaler.

3. "Distributor" means any person that
manufactures, produces, ships, transports or imports into this state or in any
manner acquires or possesses for the purpose of making the first sale of a
nicotine product or alternative vapor product.

4. "Vapor
Product":

(
a
) Means any device that may be used to deliver any
aerosolized or vaporized substance to the person who inhales from the device,
including an e-
cigarette, e-
cigar, e-
pipe, vape pen or e-
hookah.

(
b
) Includes whether or not sold separately:

(
i
) Any component, part or accessory of the device.

(
ii
) Any substance that is intended to be aerosolized or
vaporized during the use of the device, whether or not the substance contains
nicotine.

(
c
) Does not include:

(
i
) Marijuana or marijuana products.

(
ii
) any Drug, device or combination product authorized for
sale by the United States food and drug administration, as those terms are
defined in the federal food, drug, and cosmetic act (52 Stat. 1040; 21 United
States code section 321) or the regulations adopted pursuant to the federal
food, drug, and cosmetic act.
END_STATUTE

START_STATUTE
42-5502.

Levy and rate of tax

A.
There is levied and the department shall
collect an excise tax on all alternative nicotine products and vapor products
sold at retail to a consumer at a rate of fifty percent of the price of the
alternative nicotine product or vapor product sold.

B. The
tax levied and collected pursuant to this section may not be included in
computing the tax base, gross proceeds of sales or gross income of a retailer
for the purposes of this chapter and chapter 6 of this title.
END_STATUTE

START_STATUTE
42-5503.

Administration of tax; distribution of revenues

A.
Unless the context otherwise requires, article 1 of this chapter
governs the administration of the tax imposed under this article.

B. A
separate bond is not required of employees of the department to administer this
article.

C. The
department shall separately account for the monies paid under this article and
shall deposit, pursuant to sections 35-146 and 35-147, all monies
collected under this article as follows:

1. Twenty-one
percent in the state general fund.

2. Forty-nine
percent in the early childhood development and health fund established by
section 8-1181.� Of the monies deposited in the early childhood
development and health fund pursuant to this paragraph, seventy percent shall
be deposited in the same manner as prescribed in section 8-1181,
subsection D and thirty percent of the monies shall be deposited in the grant
monies account established by section 8-1181, subsection b, paragraph 4
for the purposes of improving the quality of and increasing access to early
childhood education programs, including a program in which public monies match
other public monies or private monies to support access to and quality of child
care in support of the workforce.

3. Five
percent in the ninth grade on-track grant program fund established by
section 15-249.14.

4. One
percent in the smoke-free arizona fund established by section 36-
601.01.

5. Nineteen
percent in the out-of-school time program fund established by
section 15-249.20.

6. Five
percent in the early intervention support fund established by section 41-
2023.
END_STATUTE

Sec. 7.
Exemption from rulemaking

Notwithstanding any other law, for the
purposes of this act, the department of revenue is exempt from the rulemaking
requirements of title 41, chapter 6, Arizona Revised Statutes, for one year
after the effective date of this act.

Sec. 8.
Applicability

This act applies to taxable periods
beginning on or after the first day of the month following the general
effective date.

Sec. 9.
Requirements for
enactment; three-fourths vote

Pursuant to article IV, part 1,
section 1, Constitution of Arizona, sections 8-1181 and 36-601.01,
Arizona Revised Statutes, as amended by this act, are effective only on the
affirmative vote of at least three-fourths of the members of each house
of the legislature.

Sec. 10.
Requirements for enactment; two-thirds vote

Pursuant to article IX, section 22,
Constitution of Arizona, this act is effective only on the affirmative vote of
at least two-thirds of the members of each house of the legislature and is
effective immediately on the signature of the governor or, if the governor
vetoes this act, on the subsequent affirmative vote of at least three-fourths
of the members of each house of the legislature.