Famed political strategist James Carville once said, “It’s the economy, stupid” when working on Bill Clinton’s 1992 presidential campaign. George H.W. Bush, famous for uttering the phrase, “Read my lips: no new taxes,” was forced to raise taxes during an economic recession that began in 1990 and ended the following year. How is vaping performing in the current economy?
Addressing Vaping In The Current Economy
History aside, almost 30 years later, we are stuck in another economic crisis due to the COVID-19 pandemic. Many people are out of work due to no fault of their own, and the government is forced to deal with yet another economic crisis. That being said, what is vaping’s effect on the economy? What are the positives of keeping access to flavors from an economic standpoint? What can we do as an industry to contribute to the economy at a local, state, and national level?
Jobs and Tax Revenue
We already know the vaping industry generates jobs and tax revenue. Your vape shop adds jobs to the local economy which allows the local economy to thrive. Even during COVID-19, shops have continued to operate at various levels of service: curbside pickup, delivery (if possible), and in-store service, although with enhanced safety protocols or at a limited capacity. Adults who need alternative nicotine products are part of many communities across the United States, whether they pick it up from their local vape shop or order online.
Some states have opted to tax vaping products at the wholesale level instead of banning flavors. For example, eJuices.co’s home state of Nevada taxes vapor products at 30% of the wholesale price. While this may seem excessive, as of this writing, Minnesota taxes vaping products at 95% of wholesale price. Other states, such as Kansas, have imposed taxes per milliliter of eJuice, while New Hampshire has a hybrid approach, taxing open systems at 8% wholesale and closed systems at $0.30 per milliliter.
Going the tax route is beneficial for states as they can raise much-needed tax revenue, but ultimately how that tax revenue is spent and how much taxation is considered burdensome is often a topic of debate. However, the Tax Foundation’s Janelle Cammenga said, “Taxation based on volume is the simplest way to tax these goods, as it requires neither valuation nor expensive tax administration.” This suggests that if the government uses the taxation by volume method, it could actually reduce the costs of doing business for vape shops as shops may scramble to place extra hours (and labor) into compliance efforts.
Is The Cost of Enforcement Worth It?
The vaping industry adds to the economy just like any other heavily regulated industry (think casinos, firearms, alcohol). Using our own data, we have found out that vapers spend an average of around $1,000 on vaping products yearly. A federal flavor ban would deprive states and the federal government of vital tax revenue as we saw from a previous edition of State of Vape. Massachusetts, one of the first states to ban flavors, is setting itself up to lose $120 million in tax revenue in fiscal year 2021.
The cost to actually enforce a flavor ban is still unknown as of this writing, but the loss of tax revenue forces states to look at the numbers and wonder if the loss of tax revenue is worth the cost of enforcement. In New York, another state with a flavor ban, vapers are turning to the black market to buy vaping products. This could go from becoming an economic issue to a safety issue. Some vapers have reported that if flavors were banned, they would create their own homemade eJuice.
Facing A Giant
Raising taxes—any taxes—is an unpopular decision no matter who you are. However, there will always be a demand for vaping products much like there will be demand for other highly regulated products such as alcohol and tobacco. While vape products are classified as tobacco products, we should take a look at the still-massive traditional tobacco industry.
The average yearly cost of cigarettes, assuming one smokes a pack a day, is around $2,292 a year (this can vary by state, as the average pack in New York costs around $10.67 per pack). This is more than double the average yearly cost of vaping products. On average, an individual spends half as much on vaping products as traditional tobacco products, so vaping is more economically beneficial to the individual. State governments should consider a more uniform way of taxation, such as taxation by volume. This can generate additional tax revenue while allowing vape shops to sell the flavors that vapers are so reliant on in their vaping experiences.
While there could be an entire novel written on the economic effects on vaping, we’d like to hear from you. Will you share this information with your customers? If you have any questions or concerns, you can always contact your eJuices.co account manager or sales representative.
