Joshua Krane is looking “anywhere but California” as he scrambles to find a new location for his e-cigarette vaping liquid warehouse near downtown.
That’s because by July 1, the liquids that Krane’s Craft Vapery business makes and stores in the warehouse just west of the Los Angeles Convention Center will be slapped with a tax of at least 65 percent, thanks to statewide voter passage of Proposition 56 in November.
As a result, a typical 30-milliliter bottle of vaping liquid that now sells for $10 will jump to at least $16.50.
“This is going to be absolutely devastating for us,” said Krane, who employs about five people at the warehouse. “If we want to stay in business, we can’t have that warehouse in California, and we may no longer even be able to sell to California customers.”
Krane’s response is on the extreme end of a growing alarm spreading through the local vaping industry as the new tax looms. Los Angeles is home to hundreds of retailers and vaping liquid manufacturers; nationally, the market was estimated at more than $3.5 billion last year.
Other business owners said they will pass on some of the tax to their customers, but absorb some of it themselves, forcing a major hit to profit margins. All said they hope the levy falls short of its proponents’ stated intention of discouraging people from taking up e-cigarettes.
While the headline in Proposition 56 was a $2 tax on a pack of cigarettes, a small phrase in that measure is poised to wreak havoc on the region’s vaping industry: “implementation of an equivalent tax on electronic cigarettes.”
Proponents of the measure argued that including e-cigarette products in the new tax was necessary, calling the products a gateway for teens into smoking.
The 10-year-old vaping industry now only pays the existing sales tax rate on its battery-powered e-cig delivery devices and nicotine-laced vaping liquids that customers pour inside of those devices. The liquid is turned into vapor that is inhaled to deliver nicotine into the body. In most Los Angeles County cities, the tax rate for such products is about 9 percent, though that, too, will go up next year with a raft of sales-tax hikes.
The lack of a special tax on e-cigarettes helped propel the industry’s growth and turned Southern California into a major industry center.
Proposition 56, which was approved by 64 percent of voters, first extends the existing excise tax on other tobacco products (currently 27 percent of wholesale price) to battery-powered e-cig delivery devices and vaping liquids. That tax will kick in April 1.
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