According to the Legislative Budget Board (LBB), the fiscal implications of SB 1698 are projected to result in a net negative impact to General Revenue-related funds totaling approximately $3.86 million over the 2026–2027 biennium. The core driver of these costs is the administrative burden associated with implementing and maintaining the proposed regulatory infrastructure, particularly the creation and oversight of the statewide e-cigarette product directory by the Texas Comptroller’s office.

To implement the bill, the Comptroller anticipates the need for seven new full-time employees. These include staff for processing certification applications, managing directory operations, and conducting inspections and enforcement. Annual personnel costs are estimated at over $500,000. Additionally, significant operational expenses are expected: $800,000 annually for product storage tied to enforcement actions, $414,000 for equipment, training, transportation, and inspections, and about $68,000 in outreach and mailing costs. The bill also requires the Comptroller to conduct unannounced audits and publish inspection results, further increasing administrative demands.

Though the bill authorizes a $2,500 certification fee per product and imposes civil and criminal penalties for noncompliance, the revenue potential from these mechanisms is currently indeterminate. The volume of manufacturers, products, and violations remains unknown, making it difficult to project offsetting income. All collected fees and penalties are restricted to use for administering and enforcing the subchapter, meaning they cannot be reallocated to general revenue purposes.

Finally, technology-related costs are estimated at $150,000 annually for system upgrades and licensing associated with the new regulatory database. While the Office of the Attorney General does not anticipate needing additional resources, and local governments are not expected to face significant costs, the overall state-level fiscal impact is substantial unless mitigated by higher-than-expected fee or penalty collections.

SB 1698 represents a substantial and far-reaching expansion of state regulatory authority over the sale and distribution of e-cigarettes in Texas. While the stated intent of the legislation—to improve public health and restrict youth access to unregulated products—is laudable, the mechanisms it employs raise serious concerns related to limited government, economic liberty, regulatory overreach, and fiscal responsibility.

First and foremost, the bill significantly enlarges the role and size of government. It creates a comprehensive new regulatory infrastructure within the Comptroller’s office, including the establishment of a directory of all approved e-cigarette products and manufacturers, a distributor registration system, and ongoing compliance audits. This administrative growth will require the addition of seven full-time employees and new enforcement operations, inspections, reporting duties, and rulemaking authority. Such an expansion of bureaucratic authority stands in conflict with the principle of limited government, particularly when layered atop existing federal oversight by the U.S. Food and Drug Administration (FDA), which already regulates e-cigarette manufacturing and marketing standards.

The bill also imposes a considerable fiscal burden on Texas taxpayers. The Legislative Budget Board estimates a negative impact of $3.86 million to General Revenue over the 2026–27 biennium, with similar costs projected annually thereafter. While the bill authorizes fees and penalties, these revenues are uncertain and restricted to enforcement purposes, meaning taxpayers will likely shoulder the net cost of this new program without a broader fiscal offset. This cost is particularly difficult to justify in the absence of clear evidence that the program will produce public health outcomes beyond what federal regulation already achieves.

Additionally, SB 1698 introduces a complex and onerous regulatory framework for private businesses. It requires e-cigarette manufacturers to pay $2,500 per product in annual certification fees, mandates $25,000 surety bonds for out-of-state producers, prohibits the use of certain retail packaging styles, and imposes strict reporting deadlines. Businesses out of compliance face not only civil penalties and permit revocation, but also criminal liability—including Class B misdemeanor charges for non-registration or misrepresentation. These measures disproportionately burden small retailers and independent manufacturers and may have the unintended consequence of consolidating the market in favor of larger national brands with more compliance capacity.

Finally, the bill risks unintended consequences by criminalizing regulatory infractions that could more appropriately be addressed through civil or administrative remedies. The use of criminal penalties in a commercial context—especially one involving lawful adult products—raises questions about proportionality and due process. The regulatory scope of this bill, if enacted, would set a precedent for expansive intervention in markets where consumer choice and federal standards already play a central role.

In sum, while SB 1698 aims to improve transparency and consumer protection, it does so in a way that conflicts with foundational liberty principles. The bill grows the state’s regulatory footprint, increases costs for taxpayers, creates new criminal penalties for economic activity, and places a disproportionate burden on legitimate businesses operating within the bounds of federal law. For these reasons, Texas Policy Research recommends that lawmakers vote NO on SB 1698.

• Individual Liberty: The bill infringes on individual liberty by imposing state-level restrictions on the packaging and sale of lawful e-cigarette products, even when sold to consenting adults. While the bill’s purpose is to deter marketing to minors, it risks overregulation by criminalizing certain aspects of product marketing and distribution, potentially limiting adult access to lawful products. Furthermore, by establishing criminal penalties for noncompliance with complex regulatory requirements, the bill substitutes punitive enforcement for informed consumer choice.
• Personal Responsibility: The bill shifts responsibility for safe and legal product use away from individuals and onto the state by expanding government oversight and enforcement. Rather than promoting education and accountability among consumers and parents, the bill presumes that individuals cannot be trusted to make informed decisions regarding e-cigarettes. This paternalistic approach is at odds with the principle that individuals should bear responsibility for their own actions and health choices, especially in a legal market.
• Free Enterprise: The bill imposes steep financial and procedural barriers on manufacturers, distributors, and retailers. These include a $2,500 annual certification fee per product, $25,000 surety bond requirements for out-of-state manufacturers, extensive registration and reporting mandates, criminal penalties, and the threat of product seizure for noncompliance. These burdens disproportionately affect small and mid-sized businesses, stifling innovation and market entry while favoring large, well-resourced companies that can afford to comply. It replaces a competitive, consumer-driven market with a highly regulated and costly licensing regime.
• Private Property Rights: Although the bill does not seize property outright, it authorizes the state to confiscate and destroy any e-cigarette products not listed in the state directory, including products already purchased and stocked by retailers. Retailers and distributors must bear the costs of seizure and disposal, even if noncompliance results from administrative error. This introduces uncertainty and risk into private business operations and property investment, weakening the security of ownership rights.
• Limited Government: The bill expands the role of state government in a domain already regulated federally by the FDA. It creates new administrative programs, rulemaking authority, inspection and audit protocols, and enforcement mechanisms, including criminal prosecution. The creation of a state directory and registration system, plus new staffing and reporting requirements, represents a clear expansion of regulatory authority, bureaucracy, and fiscal footprint. This growth is antithetical to the principle that government should be limited in size, scope, and power.

• HB 3772 (Same As)