Signed into law this past July by Governor Tom Wolf, Pennsylvania's latest tax reform bill incorporating HB1198, a 40% tax on “other tobacco products”, a catch-all term that includes all vaping products, accessories, and components, has been in effect as of October 1st alongside many other similarly restrictive regulations. Granted, taxation on luxury goods such as junk foods and tanning salons has been enacted nationally in the past, much to the benefit of the public, but Pennsylvania lawmakers have implemented this statewide policy in such a way that it could spell disastrous consequences not only for Pennsylvania's e-cigarette economy, but also the state's yearly revenue and profitability.
The aforementioned 40% tax introduced in HB1198 is applied not only to any and all future wholesale purchases made by e-cigarette retailers, but also to any and all retail inventory held in stock as of the first of October. This retroactive taxation could easily close down a majority, if not the entirety, of Pennsylvanian vape shops simply by forcing them to remit most of their cash reserves directly to the state in one lump payment. And if this 40% floor tax on inventory should not be paid on time, the punishment is obscenely severe, threatening fines and prison time. Astoundingly, this tax also applies to all 3rd party vapers living in the state: if any Pennsylvanian vaper makes an e-cigarette purchase from an out-of-state retailer, online or otherwise, they must report the purchase and personally send to the Department of Revenue a check for 40% of the final total – a bold and foolhardy decision that, alongside the stresses placed on local retailers, could spell the quick and quiet demise of Pennsylvania’s vaping community.
Of course, vapers are never the type to go gently into that good night. Last week, the Pennsylvania State Capitol was overrun with hundreds of vapers, local business owners, and advocates for a smoke-free future -- all of whom were rightly outraged by the destructive legislation. Big names in the industry such as Pamela Gorman, the recently appointed SFATA executive director, Alex Clark, the CASAA legislative director, and Greg Conley of the American Vaping Association, as well as many local Senators and Representatives, met in the capitol to show their support for recently filed proposals amending the 40% tax. One such proposal, Senate Bill 1362, co-sponsored by Sen. Thomas H. Killion, seeks to extend the due date of the floor tax by 90 days, giving vapor store owners up to 180 days to remit their floor tax to the Department of Revenue.
Another such bill, House Bill 2339, co-sponsored by Rep. Joseph A. Petrarca, would completely do away with the excise – a courageous suggestion, if not a little presumptuous. But it seems the crowd-favorite proposal would have to be the legislation co-sponsored by Rep. Jeff Wheeland as well as 60 other lawmakers: after garnering the approval of the House Finance Committee, it will soon move forward for discussion in the House and Senate, and possibly end up on Gov. Tom Wolf’s desk to be signed into law. If it could be said that SB 1362 does too little and HB 2339 does too much, then Rep. Wheeland’s bill, HB 2342, is the perfect compromise, proposing a single, very attainable tax on e-liquid of 5¢/mL, a reasonable duty that would leave Pennsylvania with one of the lowest e-cigarette tax rates in the country -- an ideal match for the state's competitively low tax on alcohol.
A lobbyist for the Smoke Free Alternatives Trade Association is quoted as speculating that based on current sales, the yearly revenue from Rep. Wheeland's amendment to HB1198 would top out at closer to $14 million, surpassing the generous $13.3 million projection made by the original authors of the 40% tax, which seems like a farfetched estimation that doesn’t take into account the potential impact it will have on net revenue. If bankrupted, businesses can’t pay the sales, business or property taxes they once did, and the once-waged employees previously providing income tax to the state will most likely supplementing their now sparse income through the application of government-sourced assistance, calling Pennsylvania's already fragile state of financial stability even further into question.
By using excessive pricing to drive away customers and destroy the cash reserves of vape retailers, Pennsylvania will see with increasing frequency what has been occurring all across the state: e-cigarette stores closing, store owners distraught over their futures, loyal employees being told to find new work, and a flood of vapers going back to smelly, unpleasant, but now relatively affordable tobacco alternatives. Should the Department of Revenue continue down this path, it’s safe to say the state will without a doubt see a loss in net revenue over the next fiscal year. However, if newly introduced legislation such as Rep. Wheeland’s 5¢/mL proposal should come to pass, it could mean the revitalization of Pennsylvania’s suffering e-cigarette marketplace and by extension, a satisfactory bump in Pennsylvania’s overall economic performance. We have been watching the Pennsylvania sessions in recent days and are hoping that HB2342 is read on the floor soon. We'll post an update when it happens.