Smokefree PA urges PA legislators to oppose deceitful attempt to further increase tax on e-liquid

[Bill Godshall]

Smokefree Pennsylvania sent the following letter to all PA House and Senate leaders.

July 19, 2017
The Honorable
PA Senate
Harrisburg, PA 17120

RE: Attempt to change PA vapor taxes via PA Budget legislation

Dear Senator

Please reject efforts by the Kinser Group to change PA’s 40% tax on vapor products to a $.075/ml tax on e-liquid because doing so would:
- nearly double taxes on e-liquid that is bought and sold by vape shops in PA,
- nearly triple taxes on e-liquid manufactured and sold by vape shops in PA, and
- slash by 97% taxes paid by tobacco companies Reynolds, Altria, Imperial, JTI on their cigalike e-cigarettes that are sold at convenience stores in PA.

The US vapor industry is comprised of two vastly different market segments: Premium Vaporizers and E-liquid sold at vape shops and online (comprising two thirds of the industry) versus cigalike e-cigs primarily manufactured by tobacco companies and sold at convenience stores (comprising one third of the industry). Pages 6-9 on the attached report by Wells Fargo’s Bonnie Herzog detail US vapor market segments and sales data.

The vast majority of PV and E-liquid vapers have significantly improved their health by quitting smoking or sharply reducing their cigarette consumption. In contrast, most cigalike e-cig users are cigarette smokers who use e-cigs as temporary substitutes.

A 100ml bottle of e-liquid with a wholesale price of $10 is now taxed at $4 in PA. But a $.075/ml e-liquid tax would increase that excise tax to $7.50, with an additional 7% sales tax of $.52, almost doubling its current tax. Even worse, a $.075/ml tax would triple the e-liquid taxes now paid by vape shops in PA that manufacture their own e-liquid.

In sharp contrast, large tobacco companies Reynolds (Vuse), Altria (Mark Ten & Green Smoke), Imperial (Blu), JTI (Logic) now pay a $2.40 tax for their e-cig products that wholesale for $6, but would see their PA vapor tax slashed by 97% to <$.075 under a $.075/ml e-liquid tax scheme (as their cigalike e-cigs contain <1ml of e-liquid).

Since October, tobacco companies and other cigalike e-cig manufacturers have paid 35%-50% of all vapor tax revenue collected by the PA Dept of Revenue. If PA’s 40% vapor tax is changed to a $.075/ml tax on e-liquid, tobacco companies and other cigalike e-cig manufacturers will pay just 1%-2% of PA’s vapor tax revenue in the future.

While Smokefree Pennsylvania (since 2009) helped convince tobacco companies to develop and market e-cigarettes, and has always opposed taxing any vapor product (since they are >95% less harmful than cigarettes, and have helped 100,000 Pennsylvanians quit smoking), we staunchly oppose forcing PV and E-liquid vapers to pay 98%-99% of PA’s vapor taxes, while the worlds largest tobacco companies pay just 1%-2%.

Since 2014, Reynolds has lobbied many different state legislatures to tax e-liquid by the ml (because it imposes a very tiny tax on Reynolds’ e-cigs, while imposing far greater taxes on e-liquid sold by vape shops). Reynolds lobbied for ALL of the state laws that now tax e-liquid by the ml (i.e. NC, LA, KS, WV and DE).

Many vape shops in PA (and Smokefree Pennsylvania) support changing the 40% PA vapor tax to $.05/ml tax on e-liquid as proposed by Rep. Jeffrey Wheeland (HB 1477) and by Sen. Camera Bartolotta (SB 508) because those bills would slightly reduce overall taxes on vapor products sold at vape shops. In contrast, a $.075/ml tax would significantly increase the e-liquid tax and overall taxes on PA vape shop products.

At the June 27 PA House Finance Committee hearing on HB 1477, Jake Butcher of the year-old Vaper Technology Association falsely claimed that changing PA’s 40% vapor tax to a $.075/ml tax would “save the 300 remaining small businesses and the thousands of workers that they employ from being driven from the market,” but failed to disclose that VTA has received funding from Reynolds, Altria and other tobacco companies.

At that same hearing, Amelia Rivera falsely claimed that the PA Vape Association’s board voted to support the $.075/ml tax on e-liquid. In fact, PVA’s board never voted on and were/are deeply split over that proposal (that was/is aggressively being pushed by PVA’s recently hired lobbyists at the Kinser Group and by VTA’s Butcher), and a majority of PVA’s board members have resigned in the past two months, including me.

Since 1990, Smokefree Pennsylvania has advocated smokefree workplace policies (including PA’s 2008 Clean Indoor Air Act), halting cigarette marketing to youth, increasing cigarette taxes, and urging PA’s AG to sue cigarette companies. Since 2009, we’ve opposed attempts by Obama’s DHHS and Big Pharma funded anti vaping groups to ban the sale of all vapor products, ban vaping in workplaces, and tax vapor products. For disclosure, neither Smokefree Pennsylvania nor I have ever received funding from any tobacco, drug or vapor company.

Once again, please reject efforts to tax e-liquid at $.075/ml because it would increase taxes on e-liquid and vape shops, and slash vapor taxes by 97% on tobacco companies.

Sincerely,


Bill Godshall
Founder and Executive Director

 

[Bill Godshall]

Tax equivalences for a 100ml bottle of e-liquid (with a wholesale price of $10) based upon per/ml tax schemes and ad valorem (% of price) tax schemes

mlTax=%Tax=$Tax
$.01/ml=10%=$1
$.02/ml=20%=$2
$.03/ml=30%=$3
$.04/ml=40%=$4
$.05/ml=50%=$5
$.06/ml=60%=$6
$.07/ml=70%=$7
$.075/ml=75%=$7.50
$.08/ml=80%=$8
$.09/ml=90%=$9
$.10/ml=100%=$10

Tax equivalences for tobacco company cigalike e-cigs (Vuse, Mark Ten, Blu, Logic) with a wholesale price of $6 under a per/ml tax scheme versus an ad valorem tax (% of price) scheme (assuming e-cigs contain 1ml of e-liquid, which is more than most contain)

mlTax=%Tax=$Tax
$.05/ml=.83%=$.05
$.075/ml=1.25%=$.075
$.10/ml=1.7%=$.10
$.20/ml=3.3%=$.20
$.50/ml=8.3%=$.50
$1/ml=16.7%=$1
$1.50/ml=25%=$1.50
$2/ml=33.3%=$2
$2.50/ml=41.7%=$2.50
$3/ml=50%=$3
$3.50/ml=58.3%=$3.50
$4/ml=66.7%=$4
$4.50/ml=75%=$4.50
$5/ml=83.3%=$5
$5.50/ml=91.7%=$5.50
$6/ml=100%=$6

With a 40% wholesale tax, a $10 bottle of 100ml e-liquid is taxed at $.04/ml (i.e. a $4 tax), while tobacco companies now pay $2.40/ml (i.e. a $2.40 tax) for a $6 wholesale cigalike e-cig.

With a $.075/ml tax, a $10 bottle of 100ml e-liquid would be taxed at 75% (i.e. a $7.50 tax), while tobacco companies would be taxed at 1.25% (a $.075 tax) for a $6 wholesale cigalike e-cig.

That's why Reynolds and other tobacco companies are lobbying to change the 40% tax to a per ml tax on e-liquid (as their tax burden will drop by 95%-98%, while taxes on vape shops and their customers will increase to make up for the huge decline in tobacco industry e-cig taxes).

 

[Bill Godshall]

The chart above also documents that (for a 100ml bottle whose wholesale price is $10):
- CA's 65% tax is equivalent to a $.065/ml tax.
- MN's 95% tax is equivalent to a $.095/ml tax,
- WV's $.075/ml tax is equivalent to a 75% tax,
- $.05/ml taxes in NC, LA, KS and soon DE are equivalent to a 50% tax.

 

[Rossum]

As a consumer, I have some issues with this analysis. I think you're neglecting the fact that the existing 40% tax covers everything vape-related, including hardware and DIY supplies, not just finished e-liquid. In principle, if I buy some cotton that I intend to use for wicking my atomizers, I should pay the 40% tax. Anything I buy from out-of-state, I'm supposed to pay the 40% tax on, and at that point, it's on the retail price, not wholesale. Then there's draconian penalties associated with the current tax.

Sorry Bill, but I prefer a per-ml tax on e-liquid that leaves everything else vape-related alone.

I believe most vape shops would too, because a wholesale tax means the book value of their entire inventory is 40% higher and that really hurts at income tax time, whereas a tax that's applied at the time a retail sale is made has no such effect.

 

[Bill Godshall]

I think you're neglecting the fact that the existing 40% tax covers everything vape-related, including hardware and DIY supplies, not just finished e-liquid.

Except that hardware and DIY supplies account for about 25% of sales at most vape shops in PA (while e-liquid accounts for about 75% of sales).

So a $.075/ml tax would still significantly increase overall vapor taxes for vape shops in PA from 40% to about 56.25% (.75 x .75 = .5625), which is a 40% increase.

The only vapor companies and vape shops in PA whose tax would decline (under a $.075/ml tax) are those where e-liquid accounts for less than about 53.3% of their overall sales (.075 x .533 = .40).

The last paragraph by Rossum is very misleading (which is why the tobacco industry lobbyists in PA are repeating that claim to PA legislators) as taxes must be paid regardless if they are paid last month, this month or next month.

Besides, vape shop customers in PA will be paying for all of this tax increase.

I've spoken to dozens of vape shop owners in PA, and I stand by my economic analysis, my statements to PA legislators, and my tax equivalent chart.

 

[Rossum]

The last paragraph by Rossum is very misleading (which is why the tobacco industry lobbyists in PA are repeating that claim to PA legislators) as taxes must be paid regardless if they are paid last month, this month or next month.

Please talk to an accountant about the effect that the book value of inventory has on the income taxes that a small business pays. As a small business owner (albeit not a vape-related business) I am rather painfully aware of this and take offense at the notion that I'm trying to mislead.

 

[Verb]

As a PA vaper I would prefer the per ml tax on nicotine containing eliquid to the current excise tax. Shops will adjust and find the revenue stream. I am also uncomfortable with the DoR implementation of the law that was passed compared to what the law states. Under the current law, tap water is a taxable tobacco product. That needs to change. Lots of money was wasted trying to squeeze that framework into something that meets the DoR's needs.

I would bet more has been spent on the current vapor product tax than has been collected.

 

[Bill Godshall]

Tobacco companies have paid almost half (and perhaps more than half) of the approximately $1 million per month of vapor taxes that have been sent to Harrisburg since October, while PV/e-liquid manufacturers and vape shops in PA have paid the other half.

If the tax is changed to a $.075/ml tax on e-liquid, tobacco companies will pay just 1% - 2% of the vapor tax revenue collected by Harrisburg, while vape shops in PA and their customers will pay 98%-99% of the vapor tax.

PA House and Senate leaders and the Governor's budget director have said that they'd only consider changing the 40% vapor tax to a per ml tax on e-liquid if it is "revenue neutral" (i.e. if it generates the same amount of tax revenue as the current 40% tax generates, or as DoR appears to be claiming, the same amount of tax revenue as the DoR projected the 40% tax would generate, which is about 25% more tax revenue than has been paid to date).

So any/all reductions in taxes paid by tobacco companies (for their cigalike e-cigs) must be picked accompanied by a similar increase in taxes paid by vape shop customers in PA (as otherwise, it wouldn't be revenue neutral).

The tobacco companies agree with this math, which is precisely why Reynolds has spent millions of dollars lobbying for per ml taxes on e-liquid in many different states since 2014 (and apparently a reason why Reynolds is funding VTA to lobby for per ml tax schemes).

It would be helpful if interested folks would actually do the math before publicly opining about the pros and/or cons of different vapor product tax schemes.

 

[Bill Godshall]

Please note that the $.075/ml tax scheme would also include an additional 7% sales tax.

As such, the total PA tax on a $10 wholesale bottle of 100ml juice would be more than $8 ($7.50 + $.525 = $8.025).

Although the 7% sales tax currently applies to vapor products sold in PA, the overall sales tax (along with the vapor excise tax) would increase with a $.075/ml tax.

 

[Bill Godshall]

As my letter pointed out, the tax on PA vape shops that manufacture and retail their own e-liquid would increase significantly higher than the taxes on vape shops that buy e-liquid from manufacturers, as most of those vape shops are now paying a 40% tax on the price of their raw materials (which cost less than the wholesale price of bottled e-liquid that is sold by e-liquid manufacturers).

 

[sofarsogood]

Last Friday we learn that the FDA wants to get people off smoking by making cigarettes with almost no nic and encourage switching to vaping. Taxes and other interference with smokers switching might be viewed as interfering with FDA efforts to eliminate smoking.

 

[retired1]

Last Friday we learn that the FDA wants to get people off smoking by making cigarettes with almost no nic and encourage switching to vaping. Taxes and other interference with smokers switching might be viewed as interfering with FDA efforts to eliminate smoking.

The feds aren't going to interfere with any state and their tax requirements. To do so would set off a huge doodoo storm that the feds would lose in a heartbeat.

 

[sofarsogood]

The feds aren't going to interfere with any state and their tax requirements. To do so would set off a huge doodoo storm that the feds would lose in a heartbeat.

States that interfere with switching to vaping are interfering with the FDA plan to eliminate smoking. That argument can be made since the FDA announcement last friday.

The FDA action is not getting as much attention as I would have predicted. May be that's a god thing.

(I wonder how many minor children are actually trying to buy nicotine concentrate without the assistance of a government sting? It's hard to believe that's a problem.)

 

[Rossum]

States that interfere with switching to vaping are interfering with the FDA plan to eliminate smoking. That argument can be made since the FDA announcement last friday.

You know as well as anyone that states would have to tax e-liquids and nic base at much higher rates than any of them are currently contemplating before such taxes would "interfere" with switching.

 

[sofarsogood]

You know as well as anyone that states would have to tax e-liquids and nic base at much higher rates than any of them are currently contemplating before such taxes would "interfere" with switching.

So tax mother's milk. People will still feed their babies. The rationale for extra taxes on vaping is to discourage it. Apparently the FDA does not believe vaping should be discouraged at this point.

 

[analog_free_2014]

You know as well as anyone that states would have to tax e-liquids and nic base at much higher rates than any of them are currently contemplating before such taxes would "interfere" with switching.

I think we are about to find out.

 

[Bill Godshall]

As a followup, I sent the following e-mail to 250 vapers and vape shops in PA (and some others) last Friday, along a forwarded alert from VTA opposing the ongoing attempt by Reynolds to change to 40% tax to a $.13/ml tax on e-liquid.

During the past several days, more PA vape shop owners have urged PA House leaders to oppose any increase in PA's vape tax (including to $.075/ml tax on e-liquid) during the legislature's budget negotiations, and hopefully we have defeated this lobbying effort to further increase PA's vapor taxes.

- - -

Per Tony Abboud's e-mail (below), Reynolds tobacco company is lobbying PA House leaders to more than double taxes on e-liquid and PA vape shops (from 40% to $.10/ml or more).

While relieved that VTA and PVA now oppose a $.10/ml tax on e-liquid, I urge all PA vapers and vape shops to tell PA House leaders and members to oppose ANY increase in taxes for vape shops (including the $.075/ml tax that VTA and several PVA board members have been promoting, which gave undeserved credibility to Reynolds lobbyists who are pushing a $.10/ml or more tax on e-liquid).

Below are tax equivalences for a 100ml bottle of e-liquid (with a wholesale price of $10) based on per/ml tax rates and ad valorem (% of price) tax rates (and note that PA's 40% tax equals a $.04/ml tax on e-liquid, while a $.10/ml tax equals a 100% tax).

mlTax=%Tax=$Tax
$.04/ml=40%=$4
$.05/ml=50%=$5
$.06/ml=60%=$6
$.07/ml=70%=$7
$.075/ml=75%=$7.50
$.08/ml=80%=$8
$.09/ml=90%=$9
$.10/ml=100%=$10

In sharp contrast, below are tax equivalences for tobacco company cigalike e-cigs (Vuse, Mark Ten, Blu, Logic) with a wholesale price of $6 under per/ml tax rates versus an ad valorem (% of price) tax rates (assuming e-cigs contain 1ml of e-liquid, which is more than most contain).

mlTax=%Tax=$Tax
$.05/ml=.83%=$.05
$.075/ml=1.25%=$.075
$.10/ml=1.7%=$.10
$.20/ml=3.3%=$.20
$.50/ml=8.3%=$.50
$1/ml=16.7%=$1
$1.50/ml=25%=$1.50
$2/ml=33.3%=$2
$2.50/ml=41.7%=$2.50

With a $.010/ml tax, a $10 bottle of 100ml e-liquid would be taxed at 100% (i.e. $10.00), while tobacco companies would be taxed at 1.6% (i.e. $.10) for a $6 wholesale cigalike e-cig, a 98% decline in taxes for cigarette company cigalike e-cigs.

Once again, please urge PA Representatives to reject Reynolds' lobbying to further increase taxes on vape shops and e-liquid in PA.


Bill Godshall
Executive Director
Smokefree Pennsylvania
1926 Monongahela Avenue
Pittsburgh, PA 15218
412-351-5880
BillGodshall@verizon.net


-----Original Message-----
From: Tony Abboud <abboud@vaportechnology.org>
To: billgodshall <billgodshall@verizon.net>
Sent: Fri, Aug 25, 2017 12:52 pm
Subject: PENNSYLVANIA! MAKE 3 CALLS NOW TO SAVE VAPOR!

PENNSYLVANIA VAPE COMPANIES
MAKE 3 CALLS TODAY TO SAVE VAPOR
The Pennsylvania House is putting together
its revenue package right now.
Several groups are proposing a tax on e-liquid
greater than 10 cents per milliliter!
We need you to make 3 phone calls TODAY
to make sure that the Speaker of the House, the House Majority Leader and your representative
know that PA vape businesses support 7.5 cents
and that we DO NOT support higher per milliliter tax proposals!
Click here or on the red phone below to make your calls now!

PVA and VTA thank you for taking the time to help today