Vermont imposes 92% tax on vapor products

Consumers of vapor products in the State of Vermont could begin to see the prices of their favorite e-liquids and vaping devices rise significantly following the introduction of an excise tax last week. Starting on July 1, the Tobacco Products Tax imposes a tax of 92% on the wholesale price of electronic cigarette devices and e-liquids whether nicotine based or not.

Under the legislation passed last May by the General Assembly and signed by Governor Phil Scott both devices and e-liquids will be subject to the tax. In the majority of states in the U.S. as well as European countries which have introduced excise taxes on vapor products only the liquid is subject to the tax. Generally, this consists of a fixed monetary amount per milliliter of nicotine containing liquid, such as five cents in Kansas or EUR .12 in Cyprus.

By taxing the value of the devices as well as the liquid, the legislation will compel the trade to raise prices on vape mods and closed system electronic cigarettes (“cigalikes”) which are sold as a complete unit of liquid and electronics in a single device that is ready to be vaped.  Many convenience stores across the state are reported to have doubled the prices of popular brands, such as Juul, once the tax went into effect.

Increasing prices in order to reduce consumption of vapor products among young people is the principal objective of State Representative George Till (D) who sponsored the tax bill.

Regulatory action

Two initiatives to reduce youth access to vapor products also went into effect last week in Vermont including a law which raises the minimum age for purchasing and using e-cigarettes and tobacco products from 18 to 21 years. A second law places restrictions on retail and internet sales of tobacco products and tobacco substitutes unless the vendor is a licensed wholesale dealer or has purchased the products from a licensed wholesale dealer. 

Impact on vape shops

Vape shops which specialize in selling electronic cigarette devices and e-liquids will be especially impacted by the new tax in the coming months. However, because the legislation does not contain a “floor tax” on existing inventory at the time the law went into effect it is possible for the trade to delay the effects of the tax. During the six-week interim between passage of the bill on May 23 and introduction of the tax on July 1 many of the state’s vape shops purchased a higher volume of liquid and devices than usual. This will permit retailers to increase prices slowly after this excess “buffer stock” is gradually sold off. So far, customers appear pleased that the taxes haven’t been fully passed on to them yet.

Many expected the prices on liquids and devices to double. In the future, however, as the buffer stocks are reduced, retailers may choose to absorb a portion of the higher cost of the tax in order to keep the prices affordable for their customers. Following the introduction of a 40% tax on e-cigarettes and liquids in Pennsylvania in 2016, a quarter of the state’s vape shops ceased operations rather than pass the tax on to their consumers by raising prices.

Mature vapers

Although the tax was intended to discourage youngsters from vaping through higher prices on liquids and devices, mature former smokers will also have to dig deeper into their pockets in order to pay for these products. Justin Roberge, manager of Valley Vape in Essex Junction, services many older customers who have been vaping for years. “The tax will punish older smokers trying to quit smoking with vapor products” he affirms. “It’s unfortunate.”

In Roberge’s view, age controls are a more effective way to limit youth vaping. Valley Vape’s policy is to card potential purchasers of vaping paraphernalia who appear younger than 40. The manager proudly reports that in past few years the store has successfully passed three sting operations run by state authorities trying to detect and thwart underage sales.

Compare to targeted age controls at point of sale and the recently approved restrictions on licensing and higher minimum age requirements for purchase and use of vapor products the heavy tax which falls on all consumers seems a blunt instrument.