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Colo. Voters Approve Tobacco Tax Hike, E-Cig Tax

By Daniel Tay · November 4, 2020, 12:44 AM EST

Colorado will increase the tax on cigarettes and tobacco products over several years and introduce a separate tax rate for modified-risk tobacco products such as e-cigarettes under a ballot question approved Tuesday.

Voters passed Proposition EE, which permits a gradual increase to cigarette and tobacco taxes over seven years and establishes a separate tax rate for modified-risk tobacco products. The proposition also establishes a new nicotine product tax beginning Jan. 1.

As of late Tuesday, the proposition was approved 62% to 38% with 86% of the votes reported.

Under the approved measure, Colorado's cigarette tax will increase by $1.10 per pack until July 1, 2024; $1.40 per pack until July 1, 2027; and $1.80 thereafter. This means total cigarette taxes will increase from 84 cents a pack to $1.94 until 2024, to $2.24 between 2024 and 2027 and to $2.64 thereafter. The measure also establishes a $7-per-pack and a $70-per-carton minimum price for cigarettes until July 1, 2024, and a $7.50-per-pack and $75-per-carton minimum price thereafter.

The measure also raises the tax rate on noncigarette tobacco products by 10 percentage points until 2024, 16 percentage points until 2027 and 22 percentage points thereafter. The current rate is 40% of the manufacturer's list price, meaning the tax will now be 50% until 2024, 56% until 2027 and 62% thereafter.

The proposition will raise an estimated $175.6 million in the budget year 2021-2022, according to the Colorado voter guide. In budget year 2027-2028, when the new rates are fully enacted, the proposition's provisions are estimated to bring in up to $275.9 million annually, according to the guide.

Under the measure, there will be a separate tax rate for modified-risk tobacco products, which are defined as products certified by the U.S. Food and Drug Administration to have less risk of tobacco-related disease or harm as compared with traditional tobacco products. Such products will be taxed at 35% of the manufacturer's list price.

The proposition establishes a nicotine products tax that will be assessed at the same rate and phased in on the same schedule as the tobacco products tax. A nicotine product is defined as one that contains nicotine but is not a cigarette, a tobacco product or a drug or device authorized for sale by the FDA.

Under the measure, importers and distributors must remit inventory tax to account for the increased rates on products when they take effect. The measure also reduces the vendor allowance for timely tax remittance from 3.33% to 1.6% for tobacco distributors and from 4% to 0.4% for cigarette distributors. The allowance for nicotine products is 1.1%.

The state Legislature introduced and approved the bill, H.B. 1427, referring Proposition EE to the voters in June, and Democratic Gov. Jared Polis signed the bill in July.

Ulrik Boesen, a senior policy analyst at the right-leaning Tax Foundation, previously told Law360 a benefit of the measure is that it offers predictability for consumers and businesses. A drawback, he said, is that the rate is relatively high and represents a steep increase from the current tax rates.

--Additional reporting by Asha Glover. Editing by Neil Cohen.

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