The new expanded taxes on cigarettes taking the tax to $2.60 per pack in the state combined with the expansion to vaping is expected to generate $431.1 million in revenue and is being lauded as a way to fill a void in the spending addicted legislator’s budget. Having raised their spending they had to find ways to pay for it.
The 40% tax on licensed retailers in the e-vape industry is too much to bear for many small family owned business in the state. Many of them are scrambling to shut their doors before the October 1, deadline. That translates into a loss of licensing fees, PIT and EIT taxes across the Commonwealth. For those who can’t do that they will be hit with a 40% tax on all remaining inventory. A store with $50,000 in inventory would see a tax hit of $20,000.
An April survey of 200 tobacco retailers for the (Pennsylvania Food Merchants) association found that 83 percent believe the new tobacco taxes would hurt their business. More than half said that tobacco sales are very important to their bottom line and that higher tobacco taxes would require them to slash payroll.
Slashing the payroll means less jobs and again, that is a loss to PIT and EIT taxes while expanding unemployment costs.
Then there is another cost driver. The bill defines consumers as “unclassified importers’. That means that individuals who purchase any vapor product, including e-liquid, from a vendor that hasn’t already paid the tax would be responsible to pay the state, based on retail price.
That could turn some vape users into criminals. The law also carries a $5,000 fine or up to five years in prison. Section 1207-A(a) of the law criminalizes the ownership of any vape device or e-liquid that wasn’t bought from a licensed Pennsylvania seller. So if you buy a mod on a trip to New Jersey or Ohio, merely having it in your possession will make you a criminal after October 1. Vape users who wanted to ween themselves off cigarettes in order to quit entirely would now become a criminal if they sold their vape device at a flea market. So would the buyer.
The cost per year for an inmate in prison is about $35,000.
Shops are closing, PIT and EIT revenue will be lost, Property Taxes from store fronts (owned and rented) will be gone, and jobs will be lost. That is how our Pennsylvania General Assembly thinks you balance a budget. It’s no wonder why the state is in the economic mess its in.
In 2002 the total tax collected on smoking was $317,442,000. In 2013 that had risen to over 1 billion dollars ($1,074,820,000) (Source: Tax Policy Center). This tax increase, if it reaches its expected revenue would amount to $1.5 billion dollars or almost 5 times the tax in 2002.
Most analysts are doubtful that Pennsylvania will meet it’s expectation of $431 million leaving revenue that will have to be made up through higher taxes in other areas but that’s not the only problem for us. This tax is going to negatively impact other areas of revenue funding as well creating an even larger void to fill.
The loss of the EIT and property tax revenues at the local level is just going to result in higher property taxes for everyone else. In Lebanon County several store owners are scrambling to shut their doors to beat the October 1 deadline.
It’s very easy to not look at the big picture right now and make the claim that smokers and those who use vaping are being taxed so that tax doesn’t impact those who don’t. Legislators depend on that type of thinking when they hit one sector of the population with a tax that seemingly doesn’t impact the majority. That’s rarely the case. Eventually a bad tax policy creeps like a disease that will soon impact others and by then it will be too late to complain because, as with the pension, there is a debt and that debt has to be paid.
Right now it’s hard to say how much it will cost us all in the end but if you think this is only going to impact cigarette and e-vape users you are missing the big picture.