Another 100 vape shops in Pennsylvania are in danger of closing their doors unless the state’s 40 percent excise tax on smokeless tobacco products is repealed soon, according to industry advocates.
Scores of such shops opened in the Keystone State in 2016 as interest in electronic cigarettes rose, but the legislature’s decision to tax vaping products, including the nicotine-laced fluid used in vaporizing devices, put the industry in a tailspin.
“We’ve had about 120 shops close over the past year,” Charles Huff, president of the Pennsylvania Vaping Association, told Watchdog.org.
And based on a survey of business owners the association conducted, there’s a potential for another 100 shops closing in the state unless the tax is repealed or reformed, Huff said.
Pennsylvania is not the only jurisdiction to impose such tax rates on vaping products. The city of Chicago last year placed a tax on liquid nicotine products that consisted of 80 cents per unit plus 55 cents per milliliter.
“The wholesale tax on vape shops was incredibly destructive to a very new industry,” Elizabeth Stelle, director of policy analysis for the Commonwealth Foundation in Harrisburg, told Watchdog.org.
About one-third of vape shops in the state closed their doors due to the passage of the tax, which raised about $13 million in revenue over the past year, Stelle said. But revenues from the tax are expected to take a dive in the future due to the closure of so many businesses.
“In a sense, it was kind of a one-time fix,” she said of the tax.
No other industry has faced a wholesale tax rate that is so large, according to Stelle. The tax was passed in July of last year and by the fall shops began to close because owners could not afford to continue to do business, she said. That led to the loss of hundreds of jobs around Pennsylvania.
“What’s more interesting is that you’re talking about entire life savings being wiped out,” Stelle said.
The perception among state lawmakers is that e-cigarettes are simply a tobacco-type product and ripe for taxation, like other tobacco products, she said.
“Pennsylvania loves sin taxes,” Stelle said.
But the vaping industry sees its products differently. The industry promotes e-cigarettes as an effective way for smokers to kick their habit by using vaporized nicotine-containing liquid, which vaping advocates view as much safer than smoking cigarettes. Indeed, a 2017 study funded by the charity group Cancer Research UK found that e-cigarettes come with significantly fewer health risks than traditional smoking.
Cigarettes contain 7,000 harmful chemicals, but electronic cigarettes have just four basic ingredients, according to Huff. Those ingredients are water, propylene glycol or vegetable glycerin , nicotine and some flavorings.
The federal Food and Drug Administration has been moving forward on rules to regulate liquid nicotine products, which will likely add to retailers’ costs of doing business.
Among the vape shop owners in Pennsylvania who closed their doors is Chris Hughes, who owned the Fat Cat Vapor Shop in Lycoming County. Hughes was among several shop owners profiled by the Commonwealth Foundation. He opened his shop to provide people with an alternative to traditional cigarettes but had to close his doors in the wake of the tax taking effect.
“This old tobacco harm-reduction shop is closed and is going to stay closed, compliments of our rotten, corrupt state government,” says Hughes’ Fat Cat Facebook page, which also contains a banner that proclaims, “Mary Jo Daley killed my business.”
Rep. Daley (D-Montgomery County) introduced an amendment to a bill aimed at changing the 40 percent wholesale tax, according to Alex Clark, legislative coordinator with the Consumer Advocates for Smoke-free Alternatives Association. The amendment amounted to a poison pill that killed the reform bill, Clark said.
“We’re working to get our consumer members in Pennsylvania engaged on that [repeal] issue,” Clark told Watchdog.org. His organization aims to provide consumers with information about alternatives to smoking.
Two bills, which would repeal the 40 percent wholesale tax in favor of a 5-cents-per-milliliter tax on liquid nicotine products, have been introduced in the state legislature, but Huff was not optimistic that they would pass anytime soon, as lawmakers are now focused on closing a budget gap.
“It doesn’t look like we are going to be able to repeal the 40 percent tax this session,” he said.
One driving factor in the closures of vape shops in Pennsylvania has been consumers shopping online for vaping products, according to Clark. In addition, consumers in the state’s border areas are able to avoid the increased costs by buying vaping products in other states, he said.