When it comes to taxation of vaping products, less is more. Indeed, in our view, the best level of taxation on vaping products is no tax, as we know that adding new taxes on vaping products actually discourages adult smokers from using them to quit smoking.
But what happens when revenue-hungry state politicians insist on implementing a tax? What tax is actually the best for consumers? As we saw in New Jersey, that is where things can become tricky very fast.
Last year, New Jersey Governor Phil Murphy (D) proposed a 75% wholesale tax on vaping products as part of his yearly budget. Unquestionably, such a high level of taxation would have been disastrous for all vapor businesses and consumers, so alternatives were proposed. By the time the budget was passed, the vapor tax had been changed to ten cents per milliliter (ml) of nicotine-containing liquid.
That is when the problems started. For brands like JUUL and Vuse that are sold in convenience stores and gas stations, ten cents per ml does not constitute a large barrier for adult smokers looking to switch. For example, a pack of four JUUL pods that retails for approximately $15.99 has a liquid volume of about 2.8 ml, so the tax on the product works out to 28 cents. Considering JUUL is widely credited with driving big decreases in combustible cigarette sales over the last year and a half, a ‘low’ tax level is absolutely appropriate.
E-liquids, however, got the short end of the stick in this deal. E-liquids generally contain much less nicotine per ml than a JUUL, so consumers must use more e-liquid in order to obtain a nicotine exposure that can adequately replace smoking. Under the 10 cents per ml tax system, a 60 ml bottle of e-liquid that retails for $19.99 was taxed at $6.00.
Fortunately for vape shop owners and e-liquid consumers, the New Jersey Vapor Rights Coalition — a trade group representing New Jersey vapor businesses — was not going to sit back and watch as businesses closed down and some consumers returned to smoking.
Read below for the big news:
Yesterday, Governor Murphy signed A5385/S3877 into law, marking a tremendous win for the small business retailers who sell vaping liquids and their customers. The legislation amended the approach to taxation that was enacted last July, which inadvertently created devastating results by imposing a $0.10 per milliliter wholesale tax on the sale of bottles of liquid and pods used in vaping.
The undue burden of this tax on vapor retailers caused the closure of at least 10% of the vape shops in New Jersey, the exodus of several large distributors out of the state, and the loss of hundreds of jobs. Since the bill passed last June, the New Jersey Vapor RIghts Coalition (NJVRC), under the leadership of President, Danish Iqbal, of Medusa Distribution, worked with Legislative leaders to craft A5385 and pushed it through to its passage. The key component of the bill is it changes the tax to a 10% point of sale tax on e-liquids, which is far less burdensome to vapers across the state.
This New Jersey legislation is the only one of its kind. In conjunction with other state partners and with the support and guidance of the Vapor Technology Association (VTA), the NJVRC was able to reform a standing law within one year. Assemblyman John Burzichelli was instrumental in crafting and passing this bill and has been a champion for these small business owners. The lead sponsor in Senate was Senator Paul Sarlo; and other prime sponsors included Senator Troy Singleton, and Assemblywomen Eliana Pintor-Marin and Verlina Reynolds-Jackson. These legislators were able to balance the revenue needs of the state with the concerns of industry participants.
“Over the past year, the NJVRC has worked with legislators to craft a smart, effective tax policy that will not only help the state address revenue concerns, but also ensure that the vape industry which is made up of small business owners, can continue to thrive,” said NJVRC President Danish Iqbal. “We are extremely pleased with the level of engagement from legislators across the state who listened to our concerns and suggestions. The NJVRC will continue to engage with legislators to make New Jersey a shining example of the vaping industry working with the government to address concerns about this new industry.”
The New Jersey Vapor Rights Coalition is a nonprofit advocacy group made up of vape shops, e-liquid manufacturers, hardware manufacturers, distributors and the vaping community in New Jersey. They are the only advocacy group in New Jersey actively fighting for the rights of the vape community in our state. www.njvaporcoalition.com
While do we not favor restricting the sale of e-liquids to vape shops, we did not oppose this bill because we felt that the change in the tax would do more good for public health than any harm that will be caused by the ban. Additionally, if the FDA has their way, all vaping products in flavors other than tobacco, mint, and menthol will be restricted to adult-only retail stores, so the practical effect of that portion of the law will not be very large.