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Colorado May End Sales Tax Exemption for Cigarettes


 Colorado May Apply State Sales Tax to Cigarettes.

UPDATE 3.6.13: The Colorado Senate has approved HB 1144 in a 3 to 1 vote. If signed into law by Governor John Hickenlooper (D), the bill would “make permanent the state sales and use tax on cigarettes by repealing the state exemption altogether.” The bill does not impact cigarette excise taxes.

Colorado has had an on-again, off-again relationship with cigarettes and sales tax. Cigarettes were exempt from the state sales and use tax prior to July 2009, when that exemption was suspended. Since July 2009, therefore, cigarettes in Colorado have been subject to the state 2.9% sales tax. The suspension is set to expire July 1, 2013, meaning that unless state lawmakers take action, cigarettes will once again be exempt from the Colorado state sales and use tax, effective this July. 

Colorado House Bill 13-1144, would "make permanent the state sales and use tax on cigarettes by repealing the state exemption altogether." The bill was passed by the House on February 4, 2013, and now awaits approval by the Colorado Senate.

It should be noted that cigarettes have always been exempt from city, county, and special district sales taxes in Colorado. Local exemptions for cigarettes would be "left unchanged" by HB 13-1144.

Rep. Daniel Kagan, one of the bill's sponsors, says the tax will "save lives." However Republicans initially opposed the change, arguing that "it grows government at the expense of the poor." Compromise was reached in HB 1144 section d:

"On June 30, 2104 and June 30 of each year thereafter, the state treasurer shall transfer an amount equal to the current fiscal year's sales and use tax receipts attributable to cigarettes from the general fund to the college opportunity fund … ."

Applying the state sales tax to cigarettes "would generate an estimated $28 million" in its first year. That would be a welcome addition to the College Opportunity Fund scholarship.

There is a separate cigarette excise tax rate of 4.2 cents per cigarette in Colorado. Other tobacco products (such as chew, snuff, cigars, and pipe tobacco) are taxed at 40% of the manufacturer list price. Tobacco products are also "subject to … any applicable local and special district sales taxes."

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.