A steady stream of customers poured in to M Street Vape Friday afternoon to get flavor refills for their vaporizers, but they may not be able to do that for long after a new city law takes effect.
Starting Oct. 1, a new 67 percent excise tax on vapor products takes effect in Washington, D.C., and it will likely put the shop out of business, its owner says.
Fadi Khalaf has been running M Street Vape in down town Washington for less than a year, but he doesn’t know how much longer he will be able to stay open after the city starts collecting two thirds of his profits.
“That shuts us down,” Khalaf told The Daily Caller News Foundation. “I don’t make nearly enough profit to sustain that.”
The tax will treat e-cigarettes just the same as regular tobacco-burning cigarettes, despite the fact that there is no actual tobacco being burnt, but a juice containing nicotine that is heated to produce water vapor.
Khalaf said he’s already preparing for the worst.
He’s called his real estate agent and asked for options to get out of his lease if the need arises. Khalaf said he’s also contacted Comcast to terminate his cable contract and talked with his suppliers about the possible shut down.
Eric Miller, the owner of DC Vape Joint, is in the same position as Khalaf. He said he is actively trying to sell his shop before the new law takes effect and he has already contacted his landlord to try and get out of his lease.
He said he lobbied the city as much as he could during the legislative process, but it was to no avail. Miller is going to close his vape shop, and he attributes it directly to the new tax.
“We ran our numbers and it’s just not possible,” he said. “It’s going to put us out of business.”
A lot of wholesalers aren’t even willing to work with Khalaf or the other three vape shops in the city, Khalaf said, because the burden of the 67 percent excise tax will fall on them.
To put it in real terms, if a wholesaler were to sell a $100 vaporizer to Khalaf it would need to pay the city an extra $70 for the privilege.
The excise tax is imposed on the first person who possesses or sells vapor products in the city, but if the wholesaler is based outside the district, the tax burden falls on the retailer.
The tax applies to all parts of the vaporizer, not just the e-liquid that contains the nicotine, which Khalaf emphasized repeatedly is not a tobacco product.
All the individual components of the vaporizer including batteries, coils that heat the vapor, and even decorative tips will be taxed at the 67 percent rate.
“The city is basically just telling us to leave,” Khalaf said. “They specifically targeted thevape shops. They’re not attacking the 7-Eleven.”
The convenience store, along with others like it, sells e-cigarette products produced by big tobacco companies like R.J. Reynolds, which Khalaf says can afford to pay the high tax rate.
Khalaf said his customers are more interested in a customized vaporizing experience that they can’t get from the mass produced e-cigarettes.
“I have police officers that are clients,” Khalaf said. “I have firefighters and government workers. They’re most of my clientele.”
One of those customers, Mark Cobb, a local D.C. resident, said he used to buy his e-cigarette supplies online, but when M Street Vape opened up he started shopping there because he enjoyed the ability to test the products before he bought them.
“The online presence is huge,” Cobb said. “But I don’t want to go online. I want to shop here and support my local guy.”
According to the DC Fiscal Policy Institute, the vape tax will raise $400,000 in new tax money in FY 2016 and $500,000 in FY 2017, though Khalaf said the city won’t see any of that money because all of the vape shops will be forced to close their doors.
D.C. Mayor Muriel Bowser included the taxes in her 2016 budget bill as a way to close holes in revenue created by increased funding for homelessness initiatives.
A spokesperson for the D.C. Office of Tax and Revenue did not respond to request for comment for this story.
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