Vape tax brings in millions — but 100-plus businesses close
Updated 6:03 pm, Monday, September 11, 2017
PHILADELPHIA (AP) — Myk Londino didn't expect e-cigarettes to lead him to his life's work. He just wanted to quit smoking, and nothing else had worked for him. But after vaping helped him ditch cigarettes, he fell in love, as he put it. He decided to dedicate his time to helping others switch from cigs to their electronic cousins.
Three years later, the 29-year-old is manager of Vape O2 in Philadelphia and runs two vape-related companies, one on his own and one with friends.
"If there's one thing that I absolutely love about the vaping industry," Londino said last week from the Girard Avenue shop, "it took a lot of the younger-adult generation and turned us into business owners and advocates for something that we believe in."
But if there's one thing he and nearly everyone else in the industry hate, it's the levy that threatens their very enterprise: the 40 percent tax on their products imposed by the Pennsylvania legislature last year.
Next month, it will have been one year since the tax went into effect. In that time, it has brought in $13.7 million, according to the Department of Revenue — and more than 100 of the state's estimated 400 vape shops have closed, says the Vapor Technology Association. Customers are paying more. Advocates still hope for repeal or reform. Businesses that remain open are hurting.
"It's extremely discouraging and disheartening," Londino said. "People I personally know locked their door and never unlocked it again."
The tax requires retailers to pay 40 percent on inventories when purchasing from wholesalers. An individual with a $100,000 inventory would have to come up with an extra $40,000 to stay in business.
Vape O2, like other shops that have remained open, made big changes to accommodate the tax and stay afloat. It combined a profit-margin cut with some higher prices, hoping to keep customers happy, Londino said. "Almost everything" went up in price, some products by a lot, others by a little.
"All things considered, we're doing well, but not like we used to," Londino said. "Obviously, every business opens their door every day to profit, and this tax has definitely put a damper on that."
Advocates of vaping say it helps people stop smoking and argue their cause is a public health issue. Some studies have found that e-cigarette vapor has lower levels of toxic elements than tobacco smoke, although the Food and Drug Administration previously had said more research was needed. The FDA announced in July that it would begin an effort to encourage development of "innovative tobacco products that may be less dangerous than cigarettes," interpreted by those in the industry as a loosening stance toward e-cigarettes.
In Pennsylvania, the tax has represented another source of desperately needed revenue. To vape-shop owners, it has meant something else over the last 10 months.
Among the stores that have closed, Phillyvapes shuttered its Northeast Philadelphia location during the summer; its South Philadelphia shop is converting into a members-only lounge, said manager Rome Savann.
People "can come in and hang and vape," Savann said, and membership costs will cover rent. It will continue selling products online.
Others are pushing forward, like VaporFi on South Street, which has survived in part because it is a franchise of a Miami-based company that makes its own products. That has helped insulate the shop from the tax's impact, but the business could be doing better, said manager Alex Byers.
Vapers are holding on to hope for action in Harrisburg.
While advocates have hoped the tax would be repealed or replaced during this year's budget negotiations — and say they have been lobbying lawmakers — there has been little movement on bills proposed in both chambers to swap it for a 5-cents-per-milliliter tax, which business owners say would be less harmful.
"There's really no conversation taking place. The silence is killing us," said Amelia Rivera, who runs the Pennsylvania Vape Association and a vape shop in Hamburg, Berks County, with her husband. They said the tax has cut their income by more than half and they've discussed looking for second jobs.
Vapers believe they have support among lawmakers but feel they are up against big tobacco and a lack of knowledge about the emerging industry, said Alex Clark, executive director of the Consumer Advocates for Smoke-Free Alternatives Association.
"You have people switching to a product that's taxed less, and I think you have lawmakers looking at that and saying, 'We're losing a bunch of money.' Which is very unfortunate, because this becomes less about public health and more about state tobacco revenues," Clark said.
A per-milliliter tax on the customer at the register would take the burden off the retailer as long as it is 7.5 cents or less, the advocacy groups say. (Anything higher would be worse for them than the 40 percent tax. The Pennsylvania Vape Association estimates half of the remaining 300 stores in Pennsylvania would close within a year.)
Many of the owners and workers at shuttered stores remain politically and socially active in vaping, Londino said. Even if the legislature does nothing about e-cigarettes this session, activists say they will continue to lobby for change, citing the belief that their products change people's lives and improve health.
For now, they are still getting used to the new environment.
Before the tax, Londino said, "the owner of a vape shop in Pennsylvania could have been the owner of a vape shop in Pennsylvania."
"Now that owner of a vape shop in Pennsylvania is also working other jobs."
Information from: The Philadelphia Inquirer, http://www.inquirer.com