The Tax Bringing in Millions for the State of Pennsylvania but Killing Vape Businesses

A tax that was levied on e-cigarettes and vaping products threatens to close a substantial number of the vaping businesses in the state of Pennsylvania despite bringing in close to $13 million to the state.

The law which was imposed by the Pennsylvania legislature last year, taxes 40 % on all vape products. It will have been one year since the tax went into effect come next month and so far, within this period, the tax it is said to have brought in is $13.7 million according to the Department of Revenue. 

The Vapor Technology Association says the tax has led to the closure of more than a quarter of the states estimated 400 stores. Store owners have had to increase the prices of their products to allow them stay open. They have also had to cut-down on their profit margin, which has greatly affected them and has even forced some to look for a second job to help make ends meet. Businesses that remain open are also hurting as a result of this tax and in some instances income has been slashed by a half.

In addition to the 40% tax levied on the products, a vaper in Pennsylvania could go to prison for 5 years for buying vaping products online and not paying a 40% tax on them. Alex Clark of CASAA stated in an email that “The penalties for evading tax include up to a $5000 fine or prison time not to exceed 5 years”. This implies you could go to jail for making an online purchase for e-liquid and failing to send a check to the state of Pennsylvania. 

Possession of vaping products that have been purchased in another state is also illegal. According to section 1207-A (a) of the law, the ownership of any vape products not bought from a licensed Pennsylvania seller, is a criminal offence. Buyers who make their purchases online are classified as importers and are required to make their 40% payments monthly just like the vape shop owners. They are also required to file monthly reports. Online sellers may opt to stop selling to buyers from Pennsylvania to avoid complications. Sellers in Pennsylvania may also opt to close shop and relocate to other states for business continuity.

This leaves no shortcut for the Pennsylvania vapers, its either they go to prison or pay up for the vape products. Here is an example to show the variance in price caused by this new tax law; in the state of New Jersey, nicotine liquid retails at $4.99 whereas in the state of Pennsylvania the same product goes for $10.

Vaping advocates argue their cause is a public health issue and believe e-cigarettes help people to quit smoking. They say that the rise in prices could turn those who wish to quit smoking away, and they may be left with no choice but to go back to smoking cigarettes which is believed to be more harmful.

Some Studies have found that the vapor in e-cigarettes has lower levels of toxins than in tobacco. The Food and Drug Administration (FDA) has however previously said that more research was needed to prove this. The FDA made an announcement in July that it would encourage development of “innovative tobacco products that may be less dangerous than cigarettes”. This was interpreted as a loosening stance towards e-cigarettes by those in the vaping industry.

One aspect that stood out about this tax was the “floor tax”. The floor tax required all the vendors in Pennsylvania to pay on existing stock. Not only were the vendors supposed to pay 40% for the products that they got from the distributors or the manufacturers but also on existing stock which they had. Despite the 3-month period that was given when this law took effect, this was a huge blow to small business owners and those who were incapable of raising the amount, had no choice but to shut down.

 Some believe that this tax is a representation of another desperately needed source of revenue by the state of Pennsylvania and that the tax is becoming less about public health concern and more about state tobacco revenues. 

Advocates hope that during this year’s budget negotiations, the tax will either be repealed or replaced by the 5-cents-per-milliliter tax which the Pennsylvania business owners believe would be less harmful to their vaping businesses. There has however been little movement on this issue. It is estimated that half of the remaining 300 stores could close within a year if this tax is not repealed. This is according to the Pennsylvania Vape Association. Activists have also joined the fight against this tax saying that they believe these products not only improve people’s health but change their lives as well.

Pennsylvania is the fifth largest state in the country and other states may just be watching to see how the public reacts to this tax. If business owners and consumers don’t fight back, this might soon be implemented all over the United States making vaping unaffordable to consumers and leading to the closure of more businesses countrywide.