Voters in Colorado will be the ones deciding whether or not to raise the state’s tobacco tax when they fill out their ballots in the upcoming November election after Gov. Jared Polis signed HB20-1427 today. If voters approve the increase, it will result in a drastic increase in the cost of cigars in the coming years.
Currently, premium cigars are taxed at 40 percent of the wholesale price. If the increase goes into effect, that would increase to 50 percent beginning on Jan. 1, 2021, then to 56 percent in on Jan. 1, 2024, and finally 62 percent on Jan. 1, 2027.
As for what that means at the register, a cigar with an MSRP of $9.50 that currently costs approximately $13.30 under the current rate and before any additional sales taxes are added would go up to $14.25 starting in 2021, then to $14.82 in 2024 and end up costing $15.39 when all the increases have been enacted, by halfwheel estimates.
The cigarette tax would also increase in a similar manner, but would start with establishing a new minimum price of $7 per pack. As for the tax on cigarettes, it would then go up in stages; increasing the current rate of 84 cents per pack to $1.94 as of Jan. 1, 2021, then to $2.24 per pack in 2024, and finally $2.64 in 2027. Additionally, it would raise the minimum price for a pack to $7.50 on July 1, 2024, and impose an inventory tax that corresponds to each tax increase beginning on Jan. 1, 2022.
Non-tobacco nicotine products, such as e-cigarettes and vaping devices, would become taxable. Currently, those are untaxed in Colorado, and it voters approve the proposal, a tax rate of 50 percent of the wholesale price would be in effect as of Jan. 1, 2021. It would then increase at the same rates and schedule as applied to premium cigars. Licenses would also be required to sell such products in the state.
It also creates a minimum tax for moist snuff products that would be a based on a combined minimum tax between the statutory tobacco tax and the tax imposed under Amendment 35. The bill also includes language that would lower the tax rate on a certain product by 50 percent if it were to get a Modified Risk Tobacco Product (MRTP) designation from the Food and Drug Administration (FDA).
And depending on where a person lives in the state, the tax rate could go even higher, as there is a provision that allows cities, counties or other home rule municipalities from tacking on any additional taxes to tobacco products should they pass the needed legislation.
All together, estimates say that approving the bill would bring in approximately $82.7 million in FY 2020-21, $167.6 million in FY 2021-22, and upwards of $294 million in revenue annually once fully phased in, though it would be coming out of citizens’ pockets.
For those who prefer to order their cigars and other tobacco and nicotine products online or over the phone from businesses out of state, the bill requires those entities, defined as delivery sellers, to impose the tax rate at the time of sale.
As for what voters will see on their ballot, the question will mention that the funds will primarily be used initially to fund public schools in an attempt to help offset lost revenue due to the economic impacts related to the COVID-19 pandemic, before being redirected to focus on tobacco cessation.
A similar proposal was also trying to qualify for the ballot via the initiative process, though it contained differences to raise the tax rate stto 62 percent as of Jan. 1, 2021. The organizers need gather at least 124,632 signatures by Aug. 3 in order to qualify the petition for the November ballot.
The legislature approved the bill in June, choosing to put the potential increase to voters as opposed to deciding it via the legislative process.