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July 18, 2016

UPDATE: Pennsylvania Vapor Tax Is Worse Than We Thought

Five years in prison?

It sounds like a bad joke, but it’s all too real. Pennsylvania vapers could go to prison for buying vapor products online and not paying a 40 percent tax on them. “The penalties for evading the tax include up to a $5,000 fine, or prison time not to exceed five years,” Alex Clark of CASAA told me in an e-mail. You read that right: you could go to jail for buying e-liquid online and not sending a check to the state of Pennsylvania.

It’s even illegal to merely possess products bought in another state. 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. As bad as the law seemed in our original article, it keeps getting worse.

You thought you found a way to quit smoking? Sorry, pay up or possibly go to prison.

Vapers who buy online are now importers

“The bill defines consumers as “unclassified importers’,” says Clark, who has taken a thorough look at the 257-page budget bill. 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.

In other words, anyone purchasing online or out of state would be responsible for paying 40 percent of the amount spent to the state of Pennsylvania.

Buyers will be required to file reports and make payments monthly — just like vape shops will have to do. So not only will shops be punished with a 40 percent tax on the cost of their merchandise, so will consumers.

Online sellers outside of Pennsylvania may choose to avoid complications and refuse to sell to Pennsylvania residents. And many PA businesses may opt to relocate — or close their operations altogether.

The floor tax clarified

Pennsylvania State Capitol

One of the most alarming aspects of this law is the “floor tax” it requires vendors to pay on existing stock. Not only will they have to pay 40 percent of wholesale cost on products purchased from distributors and manufacturers after the law goes into effect, they will have to pay the same amount on all existing inventory. The common understanding was that the tax would be due immediately.

The effective date of the tax, according to CASAA, is October 1, 2016. The floor tax is assessed on retailers’ onhand stock on that day. However, stores will then have 90 days to make the payment. The three-month grace period may allow some shop owners to find a way to afford it — although many may be unable to. However the tax is collected, the fact is that small businesses will be forced to hand the state cash amounting to 40 percent of the value of all merchandise in their stores, or shut their doors.

Additionally, manufacturers, distributors, and retailers must obtain licenses from the state in order to sell products in Pennsylvania. And retailers must purchase products from licensed distributors or wholesalers.

What can we do now?

Get Involved

It’s hard to imagine a law that directly attacks vapers more brutally than this one. If you’re reading this, you should be telling everyone you know. If you live in Pennsylvania, you should be writing your state legislator, senator and governor. CASAA has just issued a call to action, and their site will automatically direct residents’ messages to the correct legislators. Tell them what vaping has done for you, and for the other vapers you know. Tell them you’re bitterly disappointed that your state did this, punishing people who have done nothing but find a way to quit smoking.

If you aren’t a CASAA member, please join right now. It’s free to join (though everyone should consider donating too), and every additional member makes the organization more impressive in the eyes of legislators and regulators.

If you’re not from Pennsylvania, explain to the vapers in your area that this can happen where they live too. Pennsylvania is the fifth largest state in the country. Other states will watch this and take cues from the public reaction. If vapers don’t get serious, get active, and fight back, they’ll assume we don’t care. We have to make it clear that we care.

Smokers created vaping without any help from the tobacco industry or anti-smoking crusaders, and vapers have the right to keep innovating to help themselves. My goal is to provide clear, honest information about the challenges vaping faces from lawmakers, regulators, and brokers of disinformation. I recently joined the CASAA board, but my opinions aren’t necessarily CASAA’s, and vice versa. You can find me on Twitter @whycherrywhy

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freddyneverdie
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freddyneverdie

I thought Indiana was the worst but now this is by far. Its just so sickening how our corrupt government and legislatures are treating vapers as if their heroin addicts. Since we found a way to quit smoking before the government did they dont want nothing to do with it or anything about it. They just want to tax it like they do everything else and then throw people in jail like criminals if they buy from out of state. God forbid if the state doesnt get their cut then no one can. Pretty soon their going to legalize heroin… Read more »

Cara McGowan
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Cara McGowan

This is complete crap there is no way they can back tax you on items you purchased prior to this law going into effect. Seriously how are they gonna police this if you pay with cash in another state they have no paper trail to tie it back to you also prepaid visas work great with no paper trail so there is always a way around the system.

Michael J. McFadden
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Michael J. McFadden

They can order credit card purchase histories. That’s what they did for “cigarette tax evaders” and it was allowed. There were stories of people getting this with literally tens of thousands of dollars in back taxes and fines. And if they didn’t pay? Wellll… if you have a bank account or own a home they can slap a lien on it and take it from you. Heh, and if you try to stop them? Sorry: they got bigger guns than you have.

Think I’m exaggerating? Check out https://web.archive.org/web/20121007140427/http://www.nyc.gov/html/dof/html/services/services_fraud_cigarettes.shtml

– MJM

jody
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jody

They tried doing something like that with eBay purchases. It would be too costly and time consuming to try and get every person who purchased items online to comply. I don’t believe this will work.
There are way too many ways to get around this.

Michael J. McFadden
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Michael J. McFadden

Ebay is tough because there are literally millions of “vendors.” plus there’s a difference between sales tax and excise tax. With cigarettes and vaping the number of vendors would be a lot smaller and thus the money and regulation more concentrated. Yes, I’m sure there’ll be some trade bleeding around the edges, but not a whole lot more than we see today with cigarettes. Plus you’re likely to see the feds make the smart move on vaping and grab the money pot from the start rather that letting the states dominate it. It wasn’t until Obama levied “The Tax That… Read more »

Robert Anderson
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Robert Anderson

In the county I live in Clarion, when they first started doing this years ago they posted people who did not pay the tax on cigarettes because they would go to New York just across the boarder from Bradford to a Indian reservation and buy them or buy them online, one lady and I am not kidding you owed over 48,000 dollars. I am wondering how much damn cigarettes did this lady buy?

Michael J. McFadden
Guest
Michael J. McFadden

If the taxes ran $25/carton (I’m not sure what Indian reservations do with Federal and MSA $ … the total might be higher.) and the woman and her husband and one grown kid each smoked a carton a week (a bit heavy for today, but less than a pack and a half per day — a quantity that used to be considered borderline between moderate and heavy) then that would be $75 per week in taxes. That would be $3,750/year. If she’d done that for 10 years, that would be $37,500, plus possible penalties… particularly if the family was poor… Read more »

jody
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jody

Awesome!!! Thank you for that information!!!

gotsteam
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gotsteam

What about money orders or personal checks or good ol’ cash sent certified? Gift card transactions? Google wallet? How intrusive can state government get when it comes to your money and what you do with it? Hell, pay in silver bullion. Invent vapecoin maybe..

Michael J. McFadden
Guest
Michael J. McFadden

Hey, any and all might be possible from the customer’s end, but I doubt the IRS would look kindly upon a company that had lots of slop about cash and suchlike in its bookkeeping for “special” high-tax items. And delivery can be tough with drug-sniffing dogs and package inspections etc. If I lived in Virginia I’d be pretty hesitant about mailing cartons of cheap cigarettes up to friends in NYC: I don’t know what kind of checking and to what extent they’ve got in place for that sort of thing, but I don’t think I’m just being paranoid. Dunno though…… Read more »

gotsteam
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gotsteam

“While all retailers must collect taxes on sales in a state where they have a physical presence, the Supreme Court has held that it would be a burden on interstate commerce to force retailers to collect and remit taxes for sales in states where they are not located.” What this means is the state of Pennsylvania can NOT tax shit if the e-liquid manufacturer or “mod” manufacturer isn’t located within the state or if the retailer does not have a physical presence or “nexus” within the state. It’s called the commerce clause and Pennsylvania is not exempt from it. State… Read more »

esmoker
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esmoker

Actually, you might be joking, but PA govt is, in fact, run by a mafia and engage in drug smuggling and human and child trafficking.

gotsteam
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gotsteam

I wouldn’t doubt it ES..

Will Morgan
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Will Morgan

PA has been doing this with cigarettes for years (taxing the purchaser on goods purchased elsewhere). If you purchase cigarettes out of state, you are required to fill out a “CONSUMER CIGARETTE USE/EXCISE TAX RETURN” (http://www.revenue.pa.gov/FormsandPublications/FormsforBusinesses/Documents/Cigarette%20Tax/rev-793.pdf), and pay the amount of tax calculated by filling out the form. I don’t know of anyone who does/has done this or of anyone being fined or imprisoned for not doing it, but it has been state law since November 1, 2009. I do not smoke, but I started vaping about a year ago (a mix of PG, Ionized water and nicotine). If vaping… Read more »

esmoker
Guest
esmoker

I got nabbed 10 years ago. I was buying cigs online from an Indian reservation in NY. After a couple years, the PA dept of Revenue sent me a notice that I owe them $2500 in sales tax and fines. I guess they made the retailer give up their sales records. I paid it, but I wasn’t happy about it.

Michael J. McFadden
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Michael J. McFadden

I’m sure your perceptions/feelings are held by a LOT of people. That’s why you see such an acceptance of the black market by people who are otherwise quite strictly law-abiding.

Over-taxation of a targeted minority group leads to crime and to a general softening of the bonds that create a functioning society.

The Antismokers don’t care. They never have. And they’re now taking the same tricks and techniques they used against smokers and using them against vapers.

– MJM

Jack Thomas
Guest
Jack Thomas

Here’s what you’re missing: the state doesn’t require the tax be collected and paid by the out-of-state retailer who sells it, but by the consumer who buys it. The law is crafted so that it might be legal. I’m an accountant, not a lawyer, but I do know there is case law where the Supreme Court has held that a tax must be used to raise revenue, not as a prohibition. That’s the only possible legal challenge I can see here, and I’m not even sure if the case law applies to a tax enacted within a state.

gotsteam
Guest
gotsteam

Glad you cleared that up for me.. So it then becomes a “purchase” tax.. But how can the buyer also be the seller? Seems to me a “sales” tax would place the burden or responsibility of collecting the tax on the vendor, wouldn’t you agree?

I wonder if Pennsylvania will seek additional taxes from Vick’s Vaporub if only used on room vaporizers that contain children with chest congestion.

Let’s not split hairs here either, the “vapor” tax is based on the purchase price which involves a sale making it a sales tax, pure and simple.

Jack Thomas
Guest
Jack Thomas

No sir, actually the tax specifically singles out purchasers. It threatens felony jail time and fines. You are specifically classified as an importer under this law.

Michael J. McFadden
Guest
Michael J. McFadden

Sales taxes are taxes paid by everyone on every product as a broad general rule with some exceptions. Excise taxes are levied upon a specific product areas (e.g. tobacco, alcohol). The MSA was a unique and special case as far as I’m aware: singling out a particular subclass of consumer for taxation without ever having a tax actually passed by any representatives or legislature. The vaping tax would actually have a stronger legal basis than the MSA tax since it’s actually legislated. It’s more of a specialized excise tax. Yes, it’s specifically a tax on a minority group, but we’ve… Read more »

Michael J. McFadden
Guest
Michael J. McFadden

“the state doesn’t require the tax be collected and paid by the out-of-state retailer who sells it, but by the consumer who buys it.”

Ahhh! Very much like the MSA on cigarettes then I believe!

Jack Thomas
Guest
Jack Thomas

Yep. I don’t live in PA, but my parent company is there. It’s awful for some friends at HQ.

Michael J. McFadden
Guest
Michael J. McFadden

Jack, can you expand on that a bit? Awful how?

Jack Thomas
Guest
Jack Thomas

Two friends buy most of their juice from the same shop, and they said it’s closing. They’re honestly debating on whether they can buy enough juice to wean themselves completely off vaping before the tax takes effect. I’m probably being overly dramatic, but they are looking at the possibility of returning to cigarettes.

Beth K
Guest
Beth K

There are a lot of shops I know of that have done really well that have closed their doors completely because of this. I just want to know if people will be charged the 40% on stuff they purchased before Oct 1, 2016? Do they realize how many people will go back to smoking? I am considering it. It has helped me and alot of people I know stop chewing and smoking. This isn’t right to do this? It’s helping people stop smoking.

jody
Guest
jody

Awesome, thank you for that information!!

Laurie Carlson
Guest
Laurie Carlson

Michigan tried to enact a law very similar to this law with traditional tobacco cigarettes, and STILL say they do it. I have no clue HOW they do it??? It’s a scare tactic to make us NOT purchase traditional tobacco cigarettes online. (We were going online and purchasing cartons of cigarettes from other states so they tried to stop it.) They claimed they would tax us 200% tax on top of the cost of the Michigan tax. One carton could end up costing us over something like $200. None of us fought the law and just paid it – however,… Read more »

Michael J. McFadden
Guest
Michael J. McFadden

“Who is running that state, the Mafia?” Yep. They’re called “Tobacco Control.”

Matthew Grover
Guest
Matthew Grover

Wow, this is absolutely sickening. Thea’s legislatures should be ashamed of theirselves. Now that people (vapors) found a better helthier way to live these people want to tax the crap out of them so they get there pice of the pie… Disgusting to say the least..

Michael J. McFadden
Guest
Michael J. McFadden

The prison threat shouldn’t be a surprise actually. Nobody uttered a peep when it was enacted against smokers after all. I’ve never been able to figure out how to actually get a count of the number of smokers in prison at the moment for smoking-related infractions, but I’d estimate it’s at least up in the triple digits by now. I’m guessing we’ll soon see the number swell with vapers. Remember that virtually all Antivapers are simply Antismokers dressed up in new clothing, still out there sucking at the teats of antismoking grant money. If you look at California and Stanton… Read more »

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