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Kansas e-cig tax could e-vape-orate the industry

By   /   June 16, 2015  /   No Comments

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UP IN SMOKE: An impending tax on e-cigarettes could harm businesses that sell them.

By Grayson Quay | Watchdog Arena

The Kansas tax increase that passed last week includes a tax on electronic cigarettes that may cause an emerging industry to go up in smoke.

The tax plan, which many Republican legislators voted for unwillingly in order to plug a $400 million budget deficit before drastic cuts became necessary, will generate most of its revenue from increases to sales tax and cigarette tax and from postponements of Republican Gov. Sam Brownback’s planned income tax cuts.

Near the end of the session, however, Republican state Sen. Les Donovan introduced an additional tax on electronic cigarettes.

Lawmakers expect the fifty-cent per pack increase in cigarette taxes to raise $40.4 million dollars per year, while the tax on e-cigs, which is set to take effect in July 2016, will only bring in about $2 million per year, around half of one percent of the budget deficit.

Donovan introduced his amendment on June 1, day 102 of a legislative session that was supposed to last 90 days but ended up lasting a record-setting 113. The tax he proposed, and which eventually passed, imposes an excise tax of 20 cents per milliliter on the liquid used to operate electronic cigarettes and vaping pens.

Since this liquid is usually sold in 30 milliliter bottles, the tax would come to six dollars per bottle in addition to the 6.5 percent sales tax consumers will already be paying. Topeka vape shop kenVape sells several varieties of e-liquid, generally charging $9.95 for a 30 milliliter bottle. Once all taxes had been imposed, the same bottle would cost $16.60.

Spencer Duncan, a representative of the Kansas Vapers Association, said that the eleventh-hour introduction of the e-cigarette tax came as a surprise to him and to the industry he represents.

“Suddenly on day 102 we’re all scrambling around like chickens with our heads cut off…We never got to stand up and have hearings on it during the session,” Duncan told Watchdog, adding that he believes the tax never would have passed as a standalone bill or without the immense pressure lawmakers were under to resolve the deficit crisis.

Although Kansas is only the third state to impose an excise tax on e-cigs, following Minnesota and North Carolina, lawmakers in many states have seen the emerging e-cigarette industry as a new frontier for taxation. From January through May of 2015, 22 states and the District of Columbia introduced bills to impose an excise tax on e-cigs, although many of these bills failed and the rest are still pending.

Duncan said that most of the businesses that sell electronic cigarettes and e-liquid are small, locally owned shops that will be hit hard by the tax increase.

“Economically it’s devastating,” Duncan explained, pointing out that vape shops in Kansas City, Kan., will likely lose customers to similar establishments in Kansas City, Mo., where there is no such tax.

“Right now, at 30ml., e-juice is $12.50, so it would take it to $18.50. That’s comparable to three cartons of cigarettes. I don’t think it’s fair at all. I think Kansas is big on sin tax, alcohol tax, and tobacco tax. You look at Colorado, Missouri, Iowa, Oklahoma, Texas, there’s no tax other than sales tax on it,” Robby Swnger, owner of Vapor’s Edge E-Cig Shop in Lawrence, Kan., told Lawrence’s Channel 6 News.

Duncan also accused the new tax of “disincentivizing people to move off of tobacco.” Although e-cigs are not without health risks, Duncan argued, they can help smokers wean themselves off of smoking altogether. Even Sen. Donovan, who introduced the tax, admitted that e-cigs can serve as a healthier alternative to cigarettes, saying “You get off tobacco products and start using one of these, it looks real cool and it’s probably a little healthier for you.”

The American Lung Association has expressed skepticism toward claims that e-cigarettes can help smokers quit, pointing out that the “FDA’s Center for Drug Evaluation and Research has not approved any e-cigarette as a safe and effective method to help smokers quit.” The association also argues that claims that e-cigs are healthier than traditional cigarettes are difficult to verify due to the lack of FDA oversight.

Duncan insists that things could have been worse. Although the tax passed, the electronic cigarette industry was able to avoid falling under government regulations that Duncan said would have “killed our business.”

The biggest victory for e-cigs, however, was pushing the implementation date back to July 2016, which is a full legislative session away. In a recent call to action, The Consumer Advocates for Smoke-free Alternatives Association urged advocates to push for the tax to be repealed during the next session, before it ever takes effect.

“In an ideal world, repeal is the best option,” Duncan agreed.

This article was written by a contributor of Watchdog Arena, Franklin Center’s network of writers, bloggers, and citizen journalists.

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Grayson formerly served as staff reporter for Watchdog.org.