Colorado Voters Reject Tobacco Tax Rate Drop, Refund

Yesterday, voters in Colorado rejected a proposal that would have reduced the state’s tax rates for tobacco products by 11.53 percent and refunded $23.65 million in excess tobacco tax revenue to tobacco companies.

Voters were asked to approve or reject Proposition II. As of Wednesday morning, around two-thirds of voters had approved of Proposition II, which is a loss for tobacco companies.

Somewhat confusingly, all of this started with a different ballot measure: 2020’s Proposition EE, which saw Colorado voters approve massive tobacco tax increases.

The state had projected to collect $186.5 million in tobacco tax revenue during 2021, the first year of the new tax rates. Instead, it ended up generating $208 million, creating a surplus of $21.5 million. (State law required that $2.15 million in interest also be included, which explains the $23.65 million number.)

Colorado has a Taxpayer’s Bill of Rights (TABOR), which sets limits on how much revenue the state can collect in taxes and spend. If the state collects more tax money than it projects, the money is supposed to be refunded.

When voters approved the tobacco tax increases in 2020, some of that money was earmarked to fund early childhood education. The Colorado legislature decided to allow voters to decide whether that money should have been refunded to the tobacco companies or used to fund free universal preschool.

The voters choose to use that money for free universal preschool.

In doing so, voters are also keeping Proposition EE’s tax rates in place. These are tiered increases that began in 2021, with the next rate increase set to take place on Jan. 1, 2024.

The tax rates for cigars in Colorado are as follows:

• Prior to Proposition EE — 40 percent of the wholesale price
• Beginning Jan. 1, 2021 — 50 percent of the wholesale price
• Beginning July 1, 2024 — 56 percent of the wholesale price
• Beginning July 1, 2027 — 62 percent of the wholesale price

For cigarettes, the tax rate was 84 cents per pack prior to Proposition EE and will rise to $2.64 per pack in state taxes in 2027.

Correction — this article had the incorrect date for the 2024 and 2027 increases; they were listed as Jan. 1 of those years, when they are actually July 1 of those years. The article has been corrected, and we regret the error.