Vape tax dooms dozens of shops across Pennsylvania
Dozens of Pennsylvania “vape shops” closed as quickly as they opened over the last year, in the wake of a 40 percent state tax on vaping products.
Vaping is a smoking alternative that works by vaporizing nicotine-laced liquid.
The practice become increasingly popular over the last few years, and an estimated 400 stores dedicated to vaping products had opened by mid-2016, according to estimates by the Pennsylvania Vape Association.
More than a quarter of them have closed in the last year, largely because of the state tax, which took effect last October, according to association President Charles Huff.
“This virtually wiped me out. It just destroyed my business,” said Huff, who recently shut down his website that sold vaping products. “It hurts a lot of people that our legislators are trying to balance the budget on the backs of small businesses.”
The tax was included in the 2016-17 state budget, requiring vape shops to pay a 40 percent floor tax on their current inventory plus 40 percent on future sales.
It applies both to vaporizers and the liquid that is vaporized.
The tax raised an estimated $13.7 million for the state, according to the Pennsylvania Department of Revenue.
Once the tax was passed, some vape shop owners decided to get out of the business by slashing prices and selling off their inventory before it took effect, including Brendan Cary, former owner of Vapor Dog in Latrobe.
Vapor Dog was open less than a year, from September 2015 to August 2016.
However, though Cary said taxes were the main reason his store closed, there were other factors.
The industry grew too big too fast, he said, with dozens of new shops popping up and undercutting each other's prices.
“It just blew up so fast that the industry became oversaturated with shops. There were multiple openings left and right everywhere. There was a lot of competition,” he said.
Since closing his shop, Cary went to work for one of his former competitors, Hi Tech Vapors of Greensburg.
Staff at Hi Tech Vapors said things were rough for a while after the tax passed. The floor tax cost the owners about $25,000 up front, and sales went down because of the higher prices.
Things at the store have since stabilized.
“After the tax, it's called adapt or perish. And other shops couldn't adapt,” said Hi Tech vapors employee John Ashbaugh.
He attributes the store's survival to its focus on customer service.
“Remember ‘Cheers' from back in the day?” he asked. “This is the same thing, it's ‘Cheers' but in a vape shop.”
The tax won't force Hi Tech Vapors to close, said Austin Clark, but there's still a lot of uncertainty about how the vape business, until recently a virtually unregulated free-for-all, could change in the future.
“The industry as a whole is in a weird stage right now. It's all still very new,” Clark said.
Huff suspects more vape shops will close if the tax isn't reformed. The Pennsylvania Vape Association is working with a lobbyist to try to repeal the tax.
A proposed bill, State Senate Bill 508 would change the tax from 40 percent wholesale on all vaping products to five cents per milliliter on e-liquid, which would cost store owners much less, Huff said. However, the state senate hasn't done much with the bill since it was referred to the appropriations committee in May.
“We don't have any movement on that right now because of the current budget crisis. They're more interested, of course, in coming up with a balanced budget than dealing with little issues like this,” he said.
Many in the industry don't expect their clashes with government to go away anytime soon.
“It's us against the world,” Ashbaugh said.
Correction: Sept. 25, 2017
This story was modified to correct when Vapor Dog opened and closed.