Issue a taxing one for retailers

Merchandise lined the shelves of a small 20th Avenue storefront last week just like it had the year before.

Store manager Seth Sunseri stood behind a counter just like he had the year before.

To the average customer, not much has changed inside Vapor Expressions, a business specializing in vaping devices -- commonly called electronic cigarettes.

But in that year a new tax on the devices has come into play, bringing millions of dollars in state revenue, while hurting the profits of vaping stores, retailers claim.

"This tax only hurts local businesses," Sunseri said.

The tax

Last October, retailers dealing in vaping and tobacco products were subjected to new tariffs established by the state Legislature.

A 40 percent tax was placed on wholesale purchases of electronic cigarettes and related items, and smokeless and loose tobacco is now taxed at 55 cents per ounce.

Earlier in 2016, a cigarettes tax also was increased from $1.60 to $2.60 per pack.

The taxes, approved as part of a state revenue plan, were expected to help fund a budget deficit.

One year later, the state Department of Revenue is providing some insight into just how much money the tobacco and vaping tariffs have produced.

The electronic cigarette tax took effect Oct. 1. From then until the end of July, the Department of Revenue collected $13.7 million, department spokesman Jeffrey Johnson said, explaining August numbers are not yet available.

Through Sept. 1, the total revenue collected on other tobacco products totalled $103.4 million.

The toll

While millions in revenue is good for the state, vapor-centric retailers see the tax as a hardship, one that has caused profit losses.

That was especially true last year when retailers also faced a 40 percent floor tax, said Rus Condon, Vapor Expressions' owner.

In addition to increased costs moving forward, retailers were required to pay a floor tax -- a retroactive tax on items already in stores. The one-time levy was costly, Condon said.

"We got caught with our pants down with that floor tax. It takes a while to dig out from that," he said. "But I'd like to say we are pretty dug out of it."

Still, Condon must pay the wholesale tax on all products he purchases from distributors to place on his shelves.

A vaping device is comprised of two main components: a battery and heating element. Jars of flavored liquid, which eventually become vapor, are purchased separately.

Some distributors, Condon said, apply the 40 percent tax to all components. Others, he said, apply the tax to only directly vapor-related parts.

The discrepancy, Condon said, stems from a "vaguely described set of requirements" within taxing rules.

What is sure is that all taxed items mean additional costs for retailers, Condon said, noting that distributors have realized that fact, too.

"A lot of them have worked with us," he said, referring to costs.

And Condon said he also has worked to keep prices in his stores -- he has three across the region -- reasonable for customers. In some cases, that means a loss of profits, he said.

Even still, some customers have turned to online shopping to purchase their vaping supplies, Condon said, explaining the complicated online tax reporting system may sometimes help consumers skirt tariffs.

"It's our biggest competition," he said of online sales.

That is especially true because new taxes have led to a reduction in back-stock and stockpiled luxury items, Condon said.

In all, Condon said he has been able to contend with the new taxes, even if he doesn't like them.

"We're falling back into our groove," he said.

Reported closures

Not all vaping device retailers can say the same, said Tony Abboud, the Vapor Technology Assoc­iation's executive director.

Within six months of the taxes' implementation, about 25 percent of the state's 400 small businesses selling vaping equipment closed, he claims.

"It's more than 100 stores, which means they have laid off hundreds of workers," he said.

That hardship is mainly due to the retroactive floor tax, he said, explaining the cost to cover the large tariff cleaned out some businesses' bank accounts.

"Unless you are cash rich, you are not going to be able to do that," he said. "Clearly, it's worse than anybody thought it would be."

To combat further loss, Abboud's organization and similar groups have been working to encourage new legislation, which would do away with the 40 percent wholesale, replacing it with a per-milliliter tax on vaping liquids. Abboud said the per-milliliter tax is favorable to the existing tariff.

Abboud also said the Department of Revenue's reported gains are misleading, because tax dollars also were lost when businesses owners closed their doors.

"There is no doubt that consumers suffered when their local establishments are not available to them any more," he said.

Johnson, with the Department of Revenue, said there is no way to tell whether any income has been lost.

In addition to vape shops, convenience stores, grocery stores and other retailers sell electronic cigarettes and related devices, he said.

"It's important to keep in mind that vape shops are just one type of retailer for these products," Johnson said. "Since vape tax collections overall are not declining, it is possible that some of the market has shifted toward these other outlets."

Tobacco unaffected

Last year before the new taxes took effect, a cigarette retailer, Tracy Harella, showed off shelves, pointing out a price tag beneath a bag of loose tobacco. The price would increase by $11 Oct. 1.

At the time she predicted the price increase would have little impact on sales, saying: "They'll still be coming back in for it."

Nearly a year later, Susan Ice, a manager at Nic's Tobacco Outlet, said that prediction rang true, at least at her store.

"They are still buying tobacco," she said. "It really has not affected sales."

And unlike at vape shops, the additional cost of the tobacco costs has been forwarded wholly to consumers, Ice said.

Mirror Staff Writer Sean Sauro is at 946-7535.