With its solution to a state of financial crisis, the Vermont Tobacco Tax Authority has dealt a devastating blow to small businesses and direct to consumer product producers in Vermont.

Had VTRA developed an alternative revenue source that would not adversely affect businesses and the direct to consumer product producers in Vermont and throughout the United States, it would not have been such a bad idea.

As I understand the idea, VTRA intends to make slightly higher tax based on the least expensive solution available to take the place of the 2017 law change. The new law change in 2018 raised the cigarette tax from $2.96 to $3.40 per pack (reduced to $3.10 if the citizen of Vermont chose to participate in a $60 Million Medical Marijuana Program. If you ignore the fee of $45, a little less than 5.5 cents per milliliter), and increased the tax rate on vaping tobacco by $.50 per cartridge from .05 cents per cigarette to .04 cents per cartridge.

The state of Vermont cannot collect a tax based on one-time, taxable receipts. Every vaping cartridge produced and sold in Vermont must be taxed on the “retail value” of the product.

Having not learned that lesson from the 2017 tobacco tax increase, the new VTRA tobacco tax proposal now threatens small Vermont-based direct to consumer vapor product producers.

The tax would be applied to all cartridges of vaporized tobacco to a maximum increase of $.60 per cartridge and an annual increase of $.40.

“Excessive smoking of tobacco and hookah smoking by Vermont kids is a leading cause of youth death and disease in our state,” said Vermont Gov. Phil Scott. “Vermont is the first state in the nation to initiate a tobacco excise tax. This generates important revenue for schools, community health programs and law enforcement to support prevention and cessation programs. I have full confidence in our Tobacco Tax Authority, led by Chair Todd Schatz, to implement this tax with as little harm as possible to consumers.”

I suspect that most direct to consumer vape cartridge producers are close to breaking even on a cartridge to cartridge basis, even with the new tax. Lower or no margins are not only economically devastating, but may result in outright closure and eliminations of entire product lines. The total monetary impact is even more devastating.

The prospect of greatly reduced margins and having one more segment of our business lose it’s ability to operate threatens the viability of direct to consumer vapor product manufacturers in Vermont.

Many product lines that the $.60 per cartridge tax could impact may not go away if they suffer financial hardship or shut down. I am aware of few if any vape cartridge manufacturers that make it out of Vermont and out of the 50 state border states. I do not know of any manufacturers in the Midwest or even deep South.

The only true opportunity for a direct to consumer producer to not be adversely impacted is if those businesses operate only in Vermont or out of state, use only vapor cartridges, do not manufacture through dealers or resellers, do not sell to minors, and sell exclusively to employees.

Clearly, the intent of VTRA is to drive a substantial portion of the direct to consumer vapor cartridge industry out of Vermont and the United States.

VTRA could have shown flexibility with this tax. Rather than targeting the 100 percent margin businesses, VTRA could have targeted the 10 percent margin businesses. Much less than 90 percent of companies would have to increase their prices to remain profitable, while the other 10 percent would not have to.

The $.60 per cartridge tax could have addressed this entire issue by creating a 100 percent maximum tax increase to a maximum of $.05 per cartridge. No state or local governments would have to collect a tobacco tax from the VTRA based on one-time, taxable receipts. In fact, distributors, retailers and wholesalers would not have to collect a tobacco tax at all, thereby avoiding direct competitive harm to Vermont’s and the US’s direct to consumer vapor product producers.