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Tuesday, April 18, 2017

PA Vape Tax Redux

EDIT: The claim is now that $6 million and change has been counted instead of the $8 million listed below.  This doesn't really change the outcome - PA still covers its nut of $13 million, albeit with a bit less headroom...

So here we have the 2017 Pennsylvania Vape Association survey.

There is complaining on Facebook (and I assume elsewhere within the various anti-vape-taxing associations and groups) that no one is filling out the survey in order to create ammunition to change the nature of tax.

The idea here is that Governor Wolf expected to get $13 million in annual tax revenue from taxing vape shops.  The unfortunate aspect of this is that its a 40% across the board vape tax on e-liquid and equipment (supposedly only equipment specific to vaping and not things like USB chargers).

There has been an effort recently to change this, via use of surveys which I commented on here, to change this to a $0.05 (nickel) per milliliter e-liquid only tax.  Of course to pass this it would require action by both the PA house and senate as well as Wolf.

I feel this highly unlikely (again, see my original post).

In light of the current activity to change the tax there have been a variety of Facebook comments. (Note that a previous effort failed several months ago.)

Most recently I saw a comment to this effect: "... $8M in revenue based on 20% of300 responses"

So with something like 20% of the responding shops filling out the survey we, the vape shops of PA are generating more than 50% of the tax revenue targeted by the legislature.

One has to believe based on this number that this tax is really generating (of course, assuming those filling out the survey are honest) far more than the $13 million Wolf is looking for.

But there are questions:

First off, are the survey entries honest?

It would be very hard to say.  On the one hand there is pressure to under report showing how much business you lost to "punish" the legislature.  On the other hand over-reporting makes it look like $0.05/mil is going to make the state what exactly?

Second, if we assume that those not filling out are, let's say, 50% as successful as those filling out the survey, then the total revenue generated today via the existing 40% vape tax would be 4 (the number remaining 80% of shops) x $8 million x 50% = an additional $16  million in revenue.  (Another way for the less than savvy at math: 1/5 the shops generate $8 million.  So if each of the remaining shops generated the same amount of revenue as the 20% already reporting the total would be about $32 million.  This seem optimistic for the reasons I list above so let's cut it in half to $16 million.)

Or cut it back further.  In any case the state is meeting their target.

So from Wolf's perspective (as well as that of folks like David Reed, PA house leader) it probably looks like the tax is generating on the order of $20-24 million/year.

While there's a lot of crying about "going out of business" from shops it would seem that the tax, at least from the state of Pennsylvania's perspective, is more than successful.

So exactly why would they, the state of PA, want to change it?

No state government wants less revenue.

Why would Wolf want to sign it even if the legislature passes it?

On the other hand perhaps its all a big lie.  There would be no way to know except that PA has other tax collection means such as E-Tides for sales tax and the tobacco "floor tax" tied to the 40% tax (the floor tax was on existing inventory 10/1/2016).

As I have said before I don't see a compelling argument for the state of Pennsylvania to do anything here.

Third, there's already movement on the various infrastructures the vendors have to manage the 40% at the wholesale level.  So that would be undone costing more.

Please understand, I don't like this tax at all.  It was devastating for the businesses I have.  It was devastating for my employees.

But the question I have to ask is "do I want to go through this again?"


I think this is the wrong argument.

For example, how many wage earners lost their jobs?

How would lost wage taxes offset the 40% tax.

I think these are the questions that need answering.

Again I will say that the only real means to destroy this tax is to win cases against PA Revenue that show the tax is unequal, i.e. a USB charger is being tax at 46% one place (state+local) and 6% another.  There is a court case here.

Similarly, if 0-nic e-liquid has exactly the same ingredients as, say, frosting, then the same argument applies.


  1. To answer your second point, your math is incorrect. Based on the ML's reported here are our current calculations:
    Total ML Sold by responses recorded 2,549,231
    Average ML sold p/month (Total ML Sold /Number of responses) 35,405.99
    Total Shop Average p/month (310 X Tolal Avg Sold) 10,975,855.69
    Total Annual ML Sold (Total Shop Avg X 12 Months) 131,710,268.33
    Total possible revenue generated at .05 cents p/ml $6,585,513.42
    Bottom line is we still have not come close to meeting the state’s projected revenue based on the 40% tax.

  2. What percentage of shops does your comment represent?