Tax Sends Vape Shops Up in Smoke

Note: This commentary was first published in The Philadelphia Inquirer.

Imagine you find a way to help others live healthier lives, and this passion leads you to invest your savings to start a related small business. Now, imagine state government taking it all away from you with the stroke of a pen.

This is the reality facing hundreds of Pennsylvania “vape” shop owners who employ more than 1,000 people – they went to bed one night living their dreams and woke up the next morning facing a nightmare.

In July, lawmakers passed a $650 million tax hike to pay for a $1.6 billion spending increase. The package contained many of Gov. Wolf's proposals, including a 40 percent excise tax on e-cigarette (or vapor) products. It's bad enough that the tax applies to the wholesale price of products purchased in the future. Worse, it also applies to shops' existing inventory. In other words, vape shop owners owe the tax on products they've already bought.

For example, if a vape shop is carrying $100,000 worth of inventory on Oct. 1 when the tax goes into effect, the owner will have to cut a $40,000 check to Harrisburg just to comply with the new tax.

Not surprisingly, getting slapped with a multithousand-dollar bill is driving many shops out of business, including Philadelphia-based Northeast Vape Co. The company specifically cited the 40 percent tax as the reason it closed its doors in July, ironically when it should have been celebrating its one-year anniversary.

Sadly, Northeast Vape Co. is not alone. Industry experts estimate the tax has already put approximately 50 shops out of business.

Scottie Freeman, an entrepreneur in Erie, shut his doors because he believed he couldn't serve his customers to the best of his ability post-tax increase. “I can't help people the way I want to because the product will be too expensive,” he said.

More shop closures in Philadelphia and statewide are inevitable if the tax isn't repealed. For example, Chris Hughes is planning to close his northern Pennsylvania vape shop this month. “I'm going to continue to fight, but I can't help but feel let down by my government,” he says.

In Western Pennsylvania, vape shop operator Dori Odosso is also fighting back. Why? “I know we're important to our customers,” she says. “That's why I'm doing everything I can to stay in business. Some customers are upset and they don't want to go back to smoking. It's the reason I'm fighting for my business.”

Even Freeman isn't giving up: “I still hope to provide people an opportunity to access vape products. I had to learn to cook when I was 7 and wash my clothes at 8. I've learned to be creative.”

Their courage to fight for their customers – and their livelihoods – is admirable, but it's a fight that shouldn't be necessary.

Lawmakers and Wolf could have done without $13 million in new state spending, a mere 2 percent of the overall tax hike. Instead, they targeted a small, mom-and-pop industry and may end up with far less than $13 million as shops continue to close.

Some may contend vape shops aren't worth saving because of the products they offer. However, studies from Public Health England and the Royal College of Physicians found vapor products 95 percent less harmful than traditional cigarettes.

Quitting smoking altogether is the optimal health choice, but for those unable able to quit without help, vapor products offer a better alternative. Taxing vape shops out of existence could force many to revert to smoking.

Lawmakers can prevent further damage by repealing the tax and replacing it with a less harmful alternative. State Rep. Jeff Wheeland (R., Lycoming) is introducing legislation to replace the 40 percent excise tax with a 5-cents-per-milliliter tax on vaping liquid, such as exists in North Carolina and Louisiana.

House Majority Leader Dave Reed (R., Indiana) supports such a change, noting that Wolf was the roadblock to sparing vape shops from the crushing tax during budget negotiations.

For a governor touting “jobs that pay,” correcting this job-killing tax should be a no-brainer.

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Bob Dick is a senior policy analyst for the Commonwealth Foundation, Pennsylvania's free market think tank.