Published on September 16th, 2016 | by Jimmy Hafrey
Vape shops in the state of Pennsylvania are facing a 40 percent tax hike they must pay out-of-pocket to stay in business.
The Daily Times News is reporting that starting October 1st, vape shops will have to conduct a full inventory of products on their shelves and pay 40 percent in taxes on the entire value of the products still in their possession. This means that a shop that has about $200,000 worth of inventory would have to pay roughly $80,000 in taxes, an amount that most shops, which are considered small businesses, don’t have on hand.
The taxation decision, known as Act 84, was created with bipartisan support to help bridge a budget gap that the state is currently facing. How and why the state assembly came up with a 40 percent tax hike on these products is unknown, but many believe that the tax is too high and will close down vape businesses all over the state.
Fortunately, State Senator Tom Killion, who represents District Nine in the Pennsylvania, sees the devastation this would cause for small business owners. He has introduced a house bill that would extend the tax deadline so that vape shops would have more time to collect the amount owed on their inventory.
House Bill 1362, which was recently introduced to the state assembly, doesn’t eliminate the tax at all. Instead, the bill was introduced to merely extend the deadline for six months. The deadline now stands to be December 30, so the six-month extension would alleviate the pressures of the vape businesses until June of next year.
Speaking to reporters, Killion said that: “All’s my bill says is, ‘Hold on, let’s give them 180 days. That gives them the time to sell that equipment and sell it back and it has no impact on the budget.”
The equipment that Killion is referring to is the vape hardware that vape shops sell. These devices, known as vape mods, are the delivery mechanisms for vape liquids and cost between $40 to $300 for higher end models.
Vape devices are the slowest products to sell at vape shops, often sitting on shelves for three months or more. Because the inventory deadline is October 1st, shops with an overabundance of vape mods will be responsible for the 40 percent taxation for those products. This will make it difficult for stores to recoup enough money to pay the taxes.
Vape shops are concerned about the December 30 deadline and have contacted Killion directly to speak about this issue. The state senator has already discussed this, telling reporters that:
“They believe this tax is unfair, onerous and could force small businesses to close their doors.”
Indeed, vape shops have already begun closing all over the state. This is because the taxes are due upfront, much like cigarettes. Unlike cigarettes, however, vape shops are specialized stores that only sell vape products, making it more difficult for them to find the money needed to pay the taxes.
Shawn Rogers, a military veteran who operates two vape shops in the state, spoke on the product movement issue and the fact that vape shops are considering closing down because they will not be able to meet the deadline.
“Shop owners believe that the impact of the floor tax is especially problematic because they do not move the vaping hardware inventory quickly,” Rogers said. “Since my meeting with Sen. Killion, 50 shops have already closed their doors for business.”
The taxation issue is a fair subject for debate. Vaping products, in general, have not been taxed since the inception of the industry back in 2009, although some states have recently passed state taxes.
But a 40 percent tax seems high, especially for an industry that isn’t buoyed by large corporations. The vaping industry is made up primarily of small business owners, a group of people who can’t afford such a huge spike in taxes. And if vape shops decide to close instead of stay open, the state loses those profits and the citizens lose out on a life-saving alternative to smoking.
We will continue to update you on the state of the vape tax in Pennsylvania if and when House Bill 1362 comes to a vote.