On Wednesday, July 13th, 2016, the Pennsylvania legislature chose to protect the state’s cigarette tax revenue stream by voting to pass HB 1198 -- the revenue half of Pennsylvania’s budget -- without removing a disastrous tax on vapor products.
HB 1198 (now Act No. 84), Article 12-A requires retailers to pay an outrageous 40% tax on the purchase price of all vapor products -- devices and liquids. Part of implementing this tax includes a 40% floor tax (§1203-A) on any products on the shelves of vapor retailers on October 1st, 2016. This bill also enacts a new 55¢/oz tax on smokeless tobacco.
Here are some important dates and points to remember regarding this new tax:
This tax is imposed on ALL vapor products, which includes devices, nicotine liquids, and non-nicotine liquids.
A consumer who purchases vapor products from an unlicensed dealer over the internet or through the mail is liable for paying a tax of 40% of the retail price. Anyone who possesses “tobacco products” for which the tax has not been paid commits a summary offense which can result in fines and up to 30 days in jail (Section 1207-A(a)).
Manufacturers, Distributors, and Retailers must obtain licenses from the state in order to sell products in Pennsylvania.
Retailers must purchase products from licensed distributors or wholesalers.
The effective date of the tax is October 1st, 2016
Payment of the floor tax is due on or before December 30th, 2016 (90 days after the effective date)
Failure by any party to pay the required tax could result in hefty fines or up to five years in prison.
Although there is time built into the implementation of Article 12-A for some retailers to cover the floor tax, there will be many in Pennsylvania that find this tax to be insurmountable. Moreover, consumers in Pennsylvania will see a dramatically diminished cost advantage that vapor products once had over cigarettes. In turn, more smokers are likely to continue smoking and it is likely that some vapers will return to cigarettes.
The effect of this tax on consumers will be both an increase in purchase price and a noticeable decline in the variety of products.
This tax will most likely be passed along directly to consumers and will make it difficult for retailers in border counties to remain competitive with vapor shops just over the state line. Consumers can expect to pay anywhere from $4.00 to $6.00 more for a 30ml bottle of e-liquid.
The aforementioned difficulty that vapor retailers will have in competing with cigarettes and retailers just over the state line means that many will be facing the prospects of closing their doors. For consumers, this means a loss of variety and in many cases will mean a loss of access to advanced or specialty vapor products.
Vapor industry advocates in Pennsylvania have described this tax as unworkable. CASAA agrees with this analysis both as it relates to businesses and consumers. In the coming months, we will be working cooperatively with groups in Pennsylvania as well as national organizations to find a tenable solution. However, the fact that the legislature left a proposal on the table that would have allowed hundreds of PA vapor businesses to remain open, providing jobs, sales tax revenue, and life-saving products to hundreds of thousands of residents is astonishing. It is a sickening consideration that many in Pennsylvania will be forced to suffer the consequences of the legislature’s lack of vision before any meaningful change to this law is made.
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