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Cigarette Tobacco And Nicotine Products Tax

Concerning the taxation of products that contain nicotine, and, in connection therewith, incrementally increasing the cigarette tax and the tobacco products tax; expanding both of these taxes to apply to sales to consumers from outside of the state; creating an inventory tax that applies when the cigarette tax increases; creating a minimum tax amount for moist snuff tobacco products; creating a tax on nicotine products that is equal to the total tax on tobacco products; establishing new rates for cigarettes, tobacco products, and nicotine products that are modified risk tobacco products that are half of the statutory tax; referring a ballot issue for prior voter approval for the new and increased taxes; and allocating the new tax revenue.
2020 Regular Session
Fiscal Policy & Taxes
Bill Summary

The bill refers a ballot issue to the voters at the November 2020 general election for the following incremental tax changes beginning January 1, 2021:

  • To increase the statutory per cigarette tax from one cent to 6.5 cents until July 1, 2024, then to 8 cents until July 1, 2027, and thereafter to 10 cents;
  • To increase the statutory tobacco products tax from 20% of the manufacturer's list price (MLP) to 30% of MLP until July 1, 2024, then to 36% of MLP until July 1, 2027, and to 42% thereafter of MLP for tobacco products;
  • To create a tax on nicotine products that is equal to 50% of MLP until July 1, 2024, then 56% of MLP until July 1, 2027, and thereafter 62% of MLP, which is the same tax as the total tax levied on tobacco products, including the tax from Amendment 35, with the increase; and
  • To establish a tax rate for cigarettes, tobacco products, and nicotine products that are modified risk tobacco products approved by the United States department of health and human services that is 50% of the statutory tax rate.

The bill establishes a minimum tax for tobacco products that are moist snuff that is based on a combined minimum tax between the statutory tobacco tax and the tax imposed under Amendment 35. If voters approve the tax, then the state will have the authority to impose these taxes beginning January 1, 2021, and retain and spend the revenue as a voter-approved revenue change, and the remainder of the bill takes effect upon approval.

The cigarette and tobacco products taxes are expanded to include delivery sales made by a seller outside of the state directly to a consumer, and the delivery sellers are defined to be wholesalers or distributors. For any tax increase that takes place after January 1, 2022, an inventory tax is created on cigarettes that is imposed on all stamped cigarettes and unaffixed stamps in a wholesaler or wholesale subcontractor's possession or control at the time of a tax increase.

The bill also establishes a minimum price for cigarettes that is equal to:

  • $7 for a pack and $70 for a carton until July 1, 2024; and
  • $7.50 for a pack and $75 for a carton on and after July 1, 2024.

There are civil penalties imposed for any person who sells cigarettes for less than the minimum amount. As part of its annual June forecast, legislative council staff is required to include an estimate for the current state fiscal year of the additional sales tax revenue that is attributable to the minimum price requirement. On June 30 of the fiscal year, the state treasurer is required to transfer an amount equal to 73% of the estimate from the general fund to the newly created preschool programs cash fund, with the other 27% remaining in the general fund for the distribution to local governments, as required under current law.

The new nicotine products tax is modeled after the tobacco products tax. Nicotine products are products that contain nicotine and that are ingested into the body, which at this time is typically through vaping with an electronic cigarette. The excise tax is levied on the sale, use, consumption, handling, or distribution of all nicotine products in the state, and it is imposed on a distributor at the time the product is brought into the state, made here, or shipped or transported to retailers in the state, or the wholesaler or distributor makes a delivery sale. If a distributor fails to pay the tax, then any person or entity in possession of the nicotine products is liable for the tax.

To be a distributor of nicotine products, a person must have a license. The license costs $10 per year and requires that the distributor must have a tax license and comply with all of the laws relating to the collection of the tax. Distributors are required to file quarterly returns, and the department of revenue may require electronic fund transfers of the taxes paid. Licensees are required to maintain certain records, and retailers are likewise required to maintain records about nicotine products they purchase from a licensed distributor. The department may share the names and addresses of persons who purchased nicotine products for resale with the department of public health and environment and county and district public health agencies.

To account for the fully phased-in increased taxes per cigarette, the discount percentage on cigarette stamps that a cigarette wholesaler may retain for its collection costs is reduced from 4% to .4% and the similar discount for a tobacco products distributor is reduced from 3.33% to 1.6%. A nicotine products distributor will be permitted to retain 1.1% of the taxes collected.

The revenue from the new nicotine products tax, the inventory tax, and the additional cigarette and tobacco products taxes is deposited in the old age pension fund and then credited to the general fund in accordance with the state constitution. For fiscal years prior to July 1, 2023, most of the tax revenue will stay in the general fund, except for an amount the state treasurer transfers to the 2020 tax holding fund to offset the decreased revenue from the existing taxes that may result from the voter-approved rate increases for the tobacco tax cash fund and to reimburse local governments. Thereafter, the state treasurer will transfer an amount equal to the total tax revenue from the general fund to the 2020 tax holding fund and then transfer specified amounts to the tobacco tax cash fund, the tobacco education programs fund, and the general fund and the remainder after those amounts to the newly created preschool programs cash fund, from which the general assembly may appropriate money to a designated department to be used for an array of preschool education purposes.

The state auditor is required to annually conduct a financial audit of the use of the new tax revenue.

(Note: This summary applies to this bill as introduced.)


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Bill Text