Colorado voters approve higher taxes on cigarettes and tobacco products

The results are in: Coloradans have voted to increase taxes on cigarettes and other nicotine products.

Currently, cigarette taxes in Colorado are relatively low; they’re subject to the 2.9% state sales tax, a 4.2¢-per-cigarette (84¢-per-20-pack) tax, and local cigarette taxes in some parts of the state. There’s also a federal excise tax on cigarettes, of $1.01 per pack. Colorado doesn’t currently tax nicotine products.

Earlier this year, Governor Jared Polis signed legislation that would increase the tax on products containing nicotine. Yet for the changes created by HB20-1427 to take effect, they needed to be approved by a vote of the people.

On November 3, 2020, nearly 70% of Coloradans voted to:

  • Gradually increase the per-cigarette tax to:
    • 6.5 cents on January 1, 2021
    • 8 cents on July 1, 2024
    • 10 cents on July 1, 2027
  • Increase the statutory tobacco products tax from 20% of the manufacturer's list price (MLP) to:
    • 30% of MLP on January 1, 2021
    • 36% of MLP on July 1, 2024
    • 42% of MLP on July 1, 2027
  • Establish a new tax on nicotine products as follows:
    • 50% of MLP on January 1, 2021
    • 56% of MLP on July 1, 2024
    • 62% of MLP July 1, 2027
  • Establish separate tax rates (50% of the statutory tax rate) for “modified risk” tobacco products
  • Establish a minimum tax for moist snuff tobacco products:
    • $1.48 per 1.2-ounce can on January 1, 2021
    • $1.84 per 1.2-ounce can on July 1, 2024
    • $2.26 per 1.2-ounce can on July 1, 2027
  • Create an inventory tax on all stamped cigarettes and unaffixed stamps in a wholesaler or wholesale subcontractor's possession or control at the time of a tax increase occurring after January 1, 2022

With these changes, the minimum price for a 20-pack of cigarettes will be $7 as of January 1, 2021, and $7.50 as of July 1, 2024.

Out-of-state sellers required to collect Colorado cigarette and tobacco taxes

The measure also requires out-of-state cigarette wholesalers and tobacco and nicotine product distributors who sell directly to consumers (DTC) in Colorado to collect and remit applicable cigarette and tobacco products taxes.

By contrast, Colorado-based distributors who sell to consumers in other states may claim a tax credit equal to the amount of tax paid when the products were brought into the state.

Vendor fee reduced

HB20-1427 also reduces the portion of tax vendors who file on time are permitted to retain to cover the cost of tax collection. Effective January 1, 2021, cigarette distributors may keep only 0.4% of the tax due (down from 3.33%), while tobacco product distributors may keep 1.6% (down from 4%). Nicotine product distributors are permitted a vendor allowance of 1.1% for timely tax remittance.

This vendor allowance applies to statutory taxes only.

The changes implemented by HB20-1427 are expected to generate $175.6 million during the 2021–22 budget year and $257 million annually starting in 2027. Additional details can be found in the text of the bill and the final fiscal note.

Learn more about tax compliance in Colorado.

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