Vape shops propose 2% sales tax on their products

Licensed vaping shops are proposing a 2% sales tax on e-liquids, the Arkansas Vape Advocacy Alliance announced Sunday (Aug. 25).

The Alliance’s executive director, Bradley Phillips, told Talk Business & Politics that his association presented the 2% tax plan during this year’s legislative session while Senate President Pro Tempore Jim Hendren, R-Gravette, was presenting a bill to enact a wholesale tax on e-liquids.

The AVAA hopes to pass the tax during next year’s fiscal session. During this year’s regular session, it estimated the tax would raise about $1 million per year, Phillips said.

E-cigarettes currently are subject only to the state’s sales and use tax.

“We know that there’s going to be some kind of tax come down the board, so we would kind of like to begin the campaign right now that first of all educates folks that we are small businesses, we are mom-and-pop vape shops just like your drugstore, just like any other retail outlet that’s in downtown Main Street,” Phillips said. “We can’t afford to pay a large tax on a wholesale item and then hope that we can sell it with that new wholesale tax attached. So we feel like a tax is coming. This is the tax that we wanted for us last session, and so we’re kind of campaigning for that to happen during the fiscal.”

Hendren texted a statement to Talk Business & Politics saying, “While I appreciate the recognition by the vaping industry that we have a problem, I think a decision about the taxation of new tobacco products needs to begin with the Legislature, not the tobacco industry itself. The Legislature will be having hearings in the upcoming months to answer questions about the long-term effects of vaping, the costs that tobacco use puts on all Arkansas taxpayers, and the challenge of preventing youth from becoming addicted to new tobacco products. Then we will be in a position to build consensus on a sound policy for Arkansas.”

More than 3.6 million middle and high school students had used e-cigarettes in the past 30 days last year, according to the Centers for Disease Control and Prevention and the Food and Drug Administration. About 1.5 million more American young people used e-cigarettes in 2018 than in 2017. The industry leader, Juul, had 68% of the vaping market in June 2018.

In an interview broadcast on the Talk Business & Politics KATV TV show Sunday, Attorney General Leslie Rutledge said she supports a special legislative session to enact anti-vaping laws.

“While I am generally not one to push for more regulations, we absolutely must wrap our hands around the vaping epidemic. It is a true epidemic in Arkansas and across the country. Every single superintendent, school official that I have spoken with has said we have a vaping problem at our schools,” said Rutledge.

However, Hendren, Speaker of the House Matthew Shepherd, R-El Dorado, and Sen. Missy Irvin, R-Mountain View, who chairs the Senate Public Health Committee, said a special session is unlikely.

Hendren’s Senate Bill 571 died in the Arkansas House earlier this year and was opposed by the AVAA. It would have increased taxes on cigarettes and vaping products while creating an earned income tax credit for lower-income Arkansans. It was placed in interim study, with Hendren saying at the time he would try to build support.

That bill would have enacted a wholesale tax on e-liquid, which meant that retailers would have had to pay the tax when they bought their product and before they sold it.

“They would have all gone out of business before they paid their first wholesale tax because they would have spent tax on products that they would never be able to sell, and they wouldn’t even have been able to liquidate it on the internet,” Phillips said. “So if that wholesale tax would have passed, my folks would have just gone out of business instead of paying the government money first and then gone out of business.”

The release said that a tax over 2% would lead customers to order Chinese-made products online or to produce the e-liquids themselves. Purchasing out-of-state e-liquids is illegal under Arkansas law.

Rogue Vapors owner Troy Meuret said in the press release that the bill would have forced him to raise prices 50% regardless of how much nicotine the product contained. That price increase would have put him out of business.

This year’s Act 580 by Rep. Andy Davis, R-Roland, raises to 21 the legal age for purchasing tobacco and e-cigarette products. Members of the Armed Forces are exempt.

In the press release, Phillips said the state’s 160-170 licensed vaping shops can mark up their products 10-15% because they can answer their customers’ questions. A tax of more than 2%, however, would drive business to the internet.

“The 2% sales tax is right on the cusp of what we felt our stores could handle economically,” Phillips said in the release. “If the state chose to implement that tax on all e-liquid, not just vape shops, that would fall in line with what other states have done concerning the price of Juul and other big tobacco products that are primarily sold in gas stations. Two percent is that magic number that we think everybody can live with if they (Juul and pod manufacturers) choose to jump on board.”

The press release said that vaping shops in Arkansas employ an average of four employees each and must obtain a license with Arkansas Tobacco Control. Retail establishments do not sell vaping products to minors and are required to list their ingredients, which would not be the case for products purchased on the black market, it said.

The release said Juul pods have a different type of nicotine than the kind sold in many vaping shops and have a much higher concentration – 50 milligrams per milliliter with Juul versus a most common amount of 3 milligrams in Arkansas vape shops. Phillips said that figure was determined through an AVAA survey of those shops.