BIZ
JASON BRIDGE | TRIBUNE-REVIEW
SHUTTING UP SHOP

Vape stores say new tax will force them to close

Just six months after opening Fifth Avenue Vapor in New Kensington, store owner Rob Farr said he will soon be forced to close the shop.

Within the next few months, he will attempt to sell his inventory of electronic cigarettes and the liquids and devices that people use when smoking them, he told Christine Manganas of the Tribune-Review.

Erik Gregory, co-owner of Vape-O-holix Vape Shop in Tarentum, said he plans to fight for his business for as long as he can. He also recently opened a "vape bar" in Delmont.

Farr and Gregory are just two small vapor — vape — shop owners out of roughly 300 statewide that will be impacted by the 40 percent tax on all vapor inventories in Pennsylvania.

Imposed by Gov. Tom Wolf and the state Legislature in an effort to increase state revenue, the tax could force a majority of the shops to shut down, vape shop owners believe.

"We're fighting a huge battle," Gregory said.

Beginning on Oct. 1, a 40 percent wholesale tax will be levied on all vapor products, including smoking devices and liquids. In addition, a 40 percent inventory tax must be paid by Dec. 30.

Electronic cigarettes, or smoking simulation devices, deliver a liquid made up of propylene glycol, flavoring and nicotine.

It imitates smoking cigarettes, but people inhale vapor instead of smoke, according to the Smoke-Free Alternative Trade Association.

Besides the 6 percent sales tax statewide — 7 percent in Allegheny County — there is not an additional tax on vapor products.

The state Legislature recently closed a huge deficit in the new 2016-17 state budget that imposes higher taxes on cigarettes, smokeless tobacco and digital downloads for videos, books and music.

In May, the federal Food and Drug Administration began requiring vape shop owners and manufacturers to seek approval for their merchandise, which is even more added cost to them.

The increased state cigarette tax — a buck more per pack, raising the average price to $7 — along with the tax on electronic cigarettes and smokeless tobacco are projected to generate $497 million a year, according to a statement by Wolf's spokesman, Jeffrey Sheridan.

Sheridan said there was "widespread support" from Republicans and Democrats in both state chambers for the tax.

But the Commonwealth Foundation, a conservative organization that supports free markets and limited government, and a state lawmaker are working to provide an alternative plan that would be less harmful to business owners' wallets.

State Rep. Jeff Wheeland, a Republican from Williamsport, is set to introduce legislation to replace the tax hike with a 5-cents-per-milliliter tax, which would tax customers based on the amount of e-liquid purchased for their devices instead of taxing all vapor products such as smoking devices and accessories like batteries.

"These are truly the small mom-and-pop, scrappy entrepreneurs that we talk so much about wanting to help in Pennsylvania," said Elizabeth Stelle, director of policy analysis for the Commonwealth Foundation. "These are our job creators, and these are the businesses the state budget is actually destroying.

"It's destroying thousands of jobs and creating millions in lost revenue for a relatively small sum for the state," Stelle added.

When the tax takes effect come October, Stelle said, customers will turn to the Internet and out-of-state resources.

"The only one losing out is Pennsylvania," she said. "Other states will see a boom from this."

Alle-Kiski Valley vape shop owners Farr and Gregory agree.

"I think vaping will continue to grow, whether it's brick-and-mortar (stores) or whether it goes (to online sales)," Gregory said. "Either way, it's not going away."

Gregory and co-owner Jim Vida run the Tarentum store, and up until the tax announcement, they were planning on increasing their staff.

Instead, Gregory said, they will just do their best to stay in business.

He and others advocating against the tax are questioning why an industry that he believes is a healthier alternative to cigarette smoking is being targeted by the state.

"It seems the state is more concerned about the health of their pockets rather than the health of their people," Gregory said.

Whether vaping is better than smoking cigarettes is hotly debated. It still contains nicotine and other harmful chemicals, and doctors question its safety.

Farr said that once he closes Fifth Avenue Vapor, he will do his best to point customers in the right direction of reasonably priced products.

But he does not know what will come next for him.

"This is my income," Farr said. "I have three kids, and I don't know what I'm going to do to take care of them."

Stelle and the Commonwealth Foundation warn people that "as a state that's desperate for revenue, it might be your business next year."


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