PA tax on vape products shutters smoke shops

BY ERIKA NORTON
MILFORD — Two vape shops — Halfmoon Vapes in Milford and Electric Smoke Lounge in Dingmans Ferry — have shuttered since Pennsylvania enacted a 40 percent wholesale tax last October on all vape and e-cigarette products.
After what appeared to be a resurgence in retailers selling tobacco and related products, especially along Route 6 in Pike County, the hefty tax is putting a strain on those same retailers, hitting smaller businesses specializing in vape products the hardest. Vape products include the battery-powered devices called vaporizers or e-cigarettes, which are used to inhale flavored, vaporized liquids containing varying levels of nicotine.
According to the Commonwealth Foundation, a conservative Pennsylvania-based policy institute, 93 of the 311 vape shops open for business statewide last year have closed, a 30 percent drop since the new tax.
The other tobacco products tax was one of several tax increases included in Governor Tom Wolf’s 2016-17 budget, with the goal of closing the state’s nearly $2 billion deficit. A big chunk of tax revenue is set to come from the 62.5 percent increase in the state's $1.60-per-pack cigarette tax to $2.60 per pack.
The tax on other tobacco products, which includes all vape products, is projected to raise $13.3 million annually for the state.
Pike shops diversifyBoth taxes have not only forced vape shops to close, but tobacco stores to diversify their offerings. Milford Tobacco on East Harford Street is now called The Shop in Milford and has converted into a convenience store that sells much more than tobacco and vape products.
“If you’re not diverse in what you sell, you won’t be able to sustain in business,” said Ahmed Monessar, manager of The Shop in Milford. “The two companies that did go out of business in Milford, one in Dingmans Ferry, they couldn’t keep up. People can go over to the New York side and the Jersey side and get the same product and actually pay half the price that PA was selling it for.”
At his store, the smallest bottle of vape juice offered, a 5 mL bottle, used to sell for $4.99 prior to the tax, according to Monessar. Now with the tax, that same bottle costs $8.99.
Add a 10 percent margin on top of that, the bottle is at $10 and above.
That same product is still selling in New Jersey and New York for $4.99, Monessor said, so vape customers will now cross the border to buy their products or order online.
“If you can go over the border and get the same products and accessories that you need for half the price, then yeah it’s definitely worth it,” he said. “So it kind of filtered out those companies that only specialized in vapes, and now they have to start selling soda, juice, tobacco products, the whole nine.”
Douglas Nolan, vice president of Smoker’s Choice, which has a store in Matamoras, Milford, and more than 50 other cigarette and tobacco outlet stores in both New York and Pennsylvania, said that another issue is how manufacturers are now not selling vape products to Pennsylvania anymore due to the tax.
Nolan said Smoker’s Choice stores in Pennsylvania are still doing well because they wholesale their products to themselves, allowing them to get more products.
“We’re a wholesaler as well, and we have to pay the tax to be able to supply ourselves in PA,” he said. “If we weren’t able to do that, we may not have half of the products because most of the vape industry or the vape manufacturers don’t pay PA tax so they don’t sell to PA. So now you can’t get the products that you need that are the most popular.”
But smaller shops that aren’t also wholesalers won't survive, Nolan said.
Including the two Smoker’s Choice stores and The Shop in Milford, there still at least nine other tobacco/vape shops in the area.
Senate bill would ‘repeal and replace’To combat this issue, in April, a Senate committee approved legislation to repeal the 40 percent wholesale tax on vape products and replace it with a 5-cents-per-milliliter tax.
“We’ve already seen too many people lose their businesses and livelihoods because of the way this tax was enacted, and many more vapor businesses are teetering on the brink of failure due to the new tax burden,” said sponsor of the bill Sen. Camera Bartolotta in a statement. “The state won’t see any benefit at all from this tax if shops continue to fail.”
Senate Bill 508 was last referred to an appropriations committee in May. A similar bill was introduced in the House, but was tabled in October.
But whether vape shops survive probably won't affect the local economy much. Tobacco stores pay no local sales tax, and pay no more property tax than homeowners do. The Courier found that in the 2012-13 tax year, Pennsylvania earned $1.02 billion in sales tax from cigarettes, while Pike County and its municipalities earned nothing. Representative Mike Peifer (R-Monroe/Pike/Wayne) said at the time, "We live in a free market society. Right now smoking cigarettes is not illegal in the Commonwealth. All we can do is to educate our students and parents about the challenges and health effects of smoking.”
Related stories "Smoke shops do not bring prosperity": http://bit.ly/2ujfvXr
"Smoke shops proliferate in Pike": http://bit.ly/2tq23Vq
"Wolf seeks $1-per-pack hike in cigarette tax to reap $358M": http://bit.ly/2tlVzpo