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vaping taxation

Pennsylvania’s Vape Tax – Chris Hughes Interview

In the dismal tide of anti-vaping legislation that’s spreading across the USA there are a few places that stand out as particularly bad. Indiana, for example, where the licensing requirements are so blatantly rigged that the FBI is apparently investigating. In California the state’s hyperactive (and cash-strapped) anti-tobacco lobby is increasingly forcing vapers into the smoking areas they thought they’d managed to leave.

And then there’s Pennsylvania.

Taxation is always a popular way to have a go at vapers, for some pretty obvious reasons. A lot of effort has gone into convincing people that vaping is just as bad as smoking, and if that’s the official line it’s easy to justify taxing it like smoking, too. Of course there are practical reasons as well. Many states have come to rely on tobacco taxes and Master Settlement Agreement funds over the years, and as cigarette sales plummet they’re finding some large holes in their budgets. Taxing vapor products is a win/win for these states; they collect the tax on e-cigarettes, or they drive vapers back to smoking and collect the tax on tobacco. Either way, the state gets the money.

Taxes are appearing all over the place, but Pennsylvania is one of the most egregious culprits. Not satisfied with taxing all future sales, they also imposed a floor tax on existing stock. If a vape shop had $100,000 worth of stock on the day the tax came into force – not unusual in the industry – they had to write the state a check for $40,000. Most small businesses just don’t have that kind of money lying around, and many have already closed their doors.

A couple of days ago I spoke to one former Pennsylvania vape shop owner, Chris Hughes of Fat Cat Vapors. Chris refused to play the state’s game, and in the days before the tax came into force he sold off as much stock as he could at a discount; then he closed his shop and took his remaining inventory to the town dump.

When I talked to Chris he was in his old shop, which he now calls “The Clubhouse”. It’s become a sort of drop-in center for local vapers, where they can turn up for advice or just to hang out. Chris is dedicated to what he does; he can’t bring himself to enable the state government’s rapacity, but he’s not willing to abandon the people who relied on him. Here’s what he had to say.

 

Me: Hi, Chris. Can you start by telling me a bit about yourself and…wait, what? Is that a Wookie in a kilt?

Chris Hughes: (Picks up Wookie figurine from shelf). This? Yeah, it’s a Wookie in a kilt and Tam O’Shanter. My wife made the kilt. It used to stand on top of my liquid shelf.

Me: Well, you don’t see one of those every day. That’s impressive! Anyway, can you tell me something about yourself and how you got into vaping?

CH: Sure. I smoked for about 32 years, and then a long time ago I saw an early e-cigarette device. It was years ago, about a year after Electronic Cigarette Forum started up – I remember the forum was fairly new when I joined. Anyway I saw this device, which would have been an 808 or 901 cigalike. And I thought it was the greatest thing ever – for about a week, until I went back to smoking.

Me: Yes, my first one was similar. I actually saw it on a market stall in Kabul and just thought I’d give it a try. So I gave it a go. It was quite rubbish, but I did use it on long flights for a while.

CH: I used to use nicotine patches on flights, and then moved on to snus. Anyway, I smoked again for a while until a few years later, when the devices were a bit more advanced and a friend of mine started vaping and introduced me to it. So I started vaping too.

Me: And how did you end up running a vape shop?

CH: Within about a year I decided that vaping had had such a positive impact on my life I wanted to spread the good news. So I spent around a year and a half planning the opening of this business – which is a long time, but I wanted to do things properly – then we were open for about two and a half years before this tax came in.

Me: Yes, can we talk about that? I’ve read a bit about the new Philadelphia vaping tax. It’s a 40% tax on all sales, right?

CH: Well, that’s part of it. Yes, there’s a 40% wholesale tax on all vapor products. The thing is, shops are required to pay the tax, but you’re not allowed to collect the tax directly from consumers. The law specifically forbids anyone who has a tobacco retail license from collecting it. So you have to pay the tax at the time you buy the products and then build it into your price.

Me: So there’s no way for you to show consumers why the price suddenly went through the roof?

CH: That’s right. Then, on top of that, there’s a requirement that any licensed retailer in Pennsylvania have to buy their products from a wholesaler who’s also licensed in Pennsylvania. But although you have to do it that way, there’s also an extra tax return to complete if you don’t.

If you’re a retailer from out of state, and you’re selling to PA residents – which they all are, because this is the internet – you’re required to be licensed with the state. You have to have a line on your website to confirm you’re licensed, and you’re supposed to collect the tax from your customers and send it to the Pennsylvania revenue department. Except there’s no way to enforce that, because these retailers aren’t in the state!

Me: So what happens if they don’t do it?

CH: Then it’s the consumer’s problem. If you buy from out of state, and the retailer doesn’t collect the tax for you, then you have to submit an extra tax return. Every month. That’s twelve extra tax returns a year.

Me: Wow.

CH: Yes, this is probably the worst piece of legislation I’ve ever seen. The thing is, most consumers probably don’t know that they’re supposed to do this. It’s just buying stuff online; you add it to your basket, pay for it and a few days later it turns up. Who thinks, when they shop online, that they’re going to have to fill in an extra tax return?

Me: So, what if you nip across to a neighboring state and buy something?

CH: If you do that – if you go to, say, New Jersey and buy a mod or some liquid, then bring it back to Pennsylvania – then you have to fill in a return and pay tax on it. If you don’t do that, you’re committing a criminal offence.

Me: What about non-residents?

CH: That’s another problem. If you’re driving through PA and you bring your vape gear, technically you’re committing an offence until you leave the state again. It’s insane. This just hasn’t been thought through at all. If it was just a tax on e-liquid that would be something we could probably live with, but instead they’ve just created a mess.

Me: So what exactly is covered by the tax?

CH: Everything. Maybe. Depending on who you ask, you might get a different answer, and that’s a huge problem. The definitions are very imprecise and obviously were written by people who don’t know the subject at all. Here’s an example. In the definitions they’ve published, from the department of revenue, in one section it lists all the things that are covered by the tax and there on the list are lithium ion batteries. Then you read on to the next section, listing the things that aren’t covered, and what’s on that list? Lithium ion batteries!

Me: That’s not very helpful.

CH: No, it’s not. The lack of clarity is maybe the biggest problem with this law, because nobody really knows what’s taxable and what isn’t, what’s allowed and what isn’t. Things that seem to be taxable, depending on where you buy them, include stuff like eGo cases, wire, cotton, and batteries – maybe.

Me: I read somewhere that you have to pay the tax on battery chargers.

CH: If you buy a charger in a vape shop then yeah, you have to pay 40% tax on it. If you buy it from Amazon or the hardware store you don’t.

Me: What?

CH: Yeah, it’s crazy. In fact the law is being challenged because of that. Taxing the same product from some vendors, but not others, is unconstitutional in Pennsylvania. There’s a uniformity clause in the state constitution that says you can’t do that, so the owners of a vape store, a family business, have filed a suit against the state.

Me: I’m not surprised. It’s pretty open discrimination against vape shops, because so much of what they sell can be found in other places. I have the usual Xtar charger, and I just bought it from Amazon. I buy my VG from a horse clinic.

CH: Haha, really?

Me: Sure. Last time I bought VG from a vape shop it was about €14.99 for a liter, including shipping. The horse clinic delivers two liters of exactly the same pharma grade VG for exactly the same price, and that’s without a 40% tax on top. They sell it so people can rub it on horses to make them shiny, or something; I don’t know. But it’s pharma grade and you can vape it.

CH: Exactly. And now, with this tax, more vapers are going to look for other places to get things like that. Cotton, wire; why pay the tax when you can get them other places? Except maybe the alternatives people find won’t be designed for vaping and won’t be as safe.

Me: They might have no choice, if their local vape shops have all closed.

CH: That’s very true. Personally, I just couldn’t stay open and support this tax. I don’t want to be a part of that.

Me: So what exactly happened with you? I mean you seemed to be running a successful shop, and now you’ve closed.

CH: Well, I was president of my local trade association for sixteen months and I basically just got tired of the lack of participation from people, plus all the pressure.  I campaigned as hard as I could to amend the tax, replacing it with a simple per-ml tax on liquids. When that didn’t go through I had a sale, and sold off as much of my stock as I could. Then I bagged up the rest and took it to the town dump. It wasn’t an asset anymore; it was a liability. And when I’d done that I closed the store.

What people don’t appreciate is that the margins on hardware – mods and atomizers – are very slim. There’s no slack to build that tax in, and I’m just not the sort of person who could pass that large a price hike on to my customers. I have principles, and that isn’t something I could do. Maybe a shop that only sold liquids and coils would be fine, but if that isn’t a viable business model, which I don’t think it is, I just couldn’t do it.

At the time the tax came in I thought our best chance was for the maximum number of stores to immediately close down. Around eighty did, but that wasn’t enough to make the politicians take notice.

I hate having to abandon my customers, but I didn’t see myself as having any choice. I still help people where I can. Because I’m not a vendor now, I’m free to give advice. And I’m happy to direct people to stores that are still open.

Me: Do you see any light at the end of the tunnel?

CH: Yeah, politics.

Me: What do you mean?

CH: This whole issue is pushing people towards small-government, libertarian positions. I used to be very liberal, almost a socialist. My wife and I housed two out of state Obama volunteers when he was running the first time. Now, I make sure to tell Democratic Party politicians that I’ll never be voting for them again because of the way they’ve treated vapers.

Look at the election we just had. Donald Trump won Pennsylvania by about 46,000 votes, and this is kind of a purple state, but leaning more blue. Trump’s win was a surprise to a lot of people. But there are more than 400,000 adults who vape in Pennsylvania, and the tax went into effect five weeks before the election. Do you think maybe that swung enough votes to cost Hillary this state and twenty electoral college votes?

Anyway, I did some statistics on this and I emailed it to Hillary Clinton, to Bill Clinton and to the Democratic Governor’s Association. Our governor isn’t running again, so his job was basically to deliver this state for Hillary. Now they’re complaining about Russian hacking, but how much of the election was just down to vapers who’re fed up at all the new taxes and bans?

Me: That’s a very good point. If you look at the numbers on the Brexit referendum we had last summer, you’ll find that vapers were a lot more likely to vote to leave the EU than the general population. Some polls say more than 80% of us voted for Brexit. With 3.5 million vapers in the UK, that’s enough votes to come very close to swinging the result. And your numbers are a lot more striking than that.

CH: That’s right. All I want is for politicians to be a little bit afraid of us.

Me: Quite right. Politicians work for us, but they’ve forgotten that. They should be afraid, because if they ignore us or work against our best interests we can cost them an election.

CH: Yeah, we just need to make them realize that again. Here’s a story. A few years ago I was in Nepal, and our hotel room had a phone book in it. In that phone book were numbers for the king and queen’s bedchambers. I didn’t call them, because I had visions of about forty Gurkha soldiers turning up and giving me a beating, but anybody in that country could call their king or queen. Our politicians could learn from that. They could learn to listen.

Me: Well, I hope you can get Pennsylvania’s politicians to listen to you. Thanks for your time!

 

 

 

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