Vape Tax Continues to Hurt Small Business

Uncle Sam Taxes E Juice Products

 

Vape Tax Continues to Hurt Small Business

The running joke in economic circles is that you can influence a person to do anything; you just need to have the ability to pass an infinite tax. So the thinking goes, if you tax something enough, you can stop people from doing it. Does that mean the government has our best interest at heart when it taxes goods such as alcohol, tobacco and e juice? Maybe they view these as inelastic goods and figure they can raise taxes on them without consumption changing much? Hmmmm. Either way, the vaping industry is in the position of watching heavy taxes being levied across different counties and states.

Vaping was relatively new in the United States, only reaching the mainstream public within the last couple of years. It started slow, with only a niche following. It was usually only seen among a younger crowd, and only then in the alternative scene. But it didn’t take long before it took off. It started growing so fast that Oxford Dictionary named the word “vaping” the word of 2016. Due to the spread and interest in vaping many shops began to open to support the growing vape community. At that point the rumblings had already started in political circles. Words like taxes and regulation were thrown around with reckless abandon. The clock was ticking. Small businesses everywhere began to cringe. Fast forward a year or two, and we have perfect examples of our fears being played out in places like Chicago and Philadelphia.

The state of Illinois is not in the best of financial situations. With large amounts of debt, tens of millions in unfunded pensions and CPS failing, they’re on the short list of people who always have their hand out. Many measures are being taken to help right the ship and one Chicago quickly passed was the Liquid Nicotine Product Tax. It is imposed on the retail sale of all liquid nicotine products in the City.

$0.80 per product unit, plus an additional $0.55 per fluid milliliter of consumable liquid, gel, or other solution contained in the product.

That means a 30ml bottle of e juice that used to cost $15 now costs $33.10! That’s insane. Chicago did the same thing with cigarettes a long time ago. Now there are a bunch of gas stations and tobacco stores right over the border in Indiana that make a killing. Vapors either took their business outside of the city or shop online. Needless to say, more than a few stores had to close their doors once the tax kicked in.

“It really hit us hard.” said Danny, an owner at Vape Exquisite, a now closed shop in the City’s Lincoln Park neighborhood. “A lot of our customers either drove out to the suburbs or started buying online. Why would they come in here and pay almost double for some of the juice?”

Vape Exquisite closed its Lincoln Park location six months after the tax took effect. It’s estimated that over 60 shops have closed due to the tax.

The story is the same in the City of Brotherly Love. They passed a tax that took effect in October of 2016. The tax there is structured a little differently than in Chicago. Instead of being placed directly on the consumer, it is placed on the retailer. But we all know how costs get passed down the line.

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.

Vic Dunfiner is a manager at Vicious Clouds, a vape store in Philadelphia. He’s experienced some of the problems that the new tax can cause, the way it directly hurts small businesses.

“It’s extremely discouraging and disheartening,” Dunfiner said. “People I personally know locked their door and never unlocked it again.”

Like the stores in Chicago, Vicious has had to raise their prices. It’s estimated that over 100 of the 400 stores in the state have had to close, and there may still be more. The shops that have stuck around have also seen a decline in revenue. It’s too easy for people to buy online.

“All things considered, we’re doing well, but not like we used to,” Dunfiner said. “Obviously, every business opens their door every day to profit, and this tax has definitely put a damper on that.”

With the FDA pushing back the date for deeming regulations we got to see many smaller juice manufacturers stay open. When small business thrives, the consumer wins. Unfortunately, those aren’t always the cards we’re dealt.