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Cigarette Tax

Table of Contents

Background

The cigarette tax is levied on the sale of cigarettes by wholesalers and is assessed at a fixed amount on each single cigarette sold.  The cigarette tax has two components.  The first, enacted in 1964, is a tax of 1¢ per cigarette.1  In 2004, voters approved an additional 3.2¢ tax per cigarette with the passage of Amendment 35.  The Department of Revenue is responsible for administering both taxes, which are collected in practice as a single tax of 84¢ per pack of 20 cigarettes.  Wholesalers are responsible for collection of the tax and must submit monthly payments to the Department of Revenue on or before the tenth day of the month following collections.

The original 1¢ tax is subject to the TABOR Amendment’s limitations on state revenue and spending.  Amendment 35 is a voter-approved tax increase, exempting the additional tax revenue from the TABOR limit.

 

Tax Rate

Cigarettes are taxed at 4.2¢ per cigarette (84¢ per pack of 20 cigarettes).  Cigarettes are also subject to the 2.9 percent state sales tax.  Local governments and special districts may also levy a cigarette tax.  However, local governments that do so are not entitled to an allocation of state cigarette tax revenue and, in practice, no local taxes are levied.  No tax exemptions or credits are available for cigarettes.

 

Distribution

The distribution of revenue from the cigarette tax and tobacco tax is illustrated below.  Through the Old Age Pension Fund, revenue from the original 1¢ tax per cigarette is allocated to the General Fund for spending on general operations at the discretion of the General Assembly.2,3  Twenty-seven percent of this revenue is distributed to local governments based on the amount of revenue collected within a given city or county.4  A majority of Amendment 35 revenue is distributed to state and local government health care and tobacco prevention programs, as required by the Colorado Constitution.5,6

         

Federal Taxes

The federal government levies a $1.01 excise tax on each pack of 20 cigarettes.  The federal tax was increased from 39¢ per pack in 2009.

 

State Comparisons

All states and territories in the U.S. levy excise taxes on cigarettes.  Colorado’s tax on cigarettes is below the national average, ranking 37th of the 50 states as of 2018.  New York levies the highest state excise tax at $4.35 per pack.  Missouri levies the lowest state excise tax at 17¢ per pack.

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1Colo. Const. art X, § 21, Part 1 of Title 39, Article 28, C.R.S., and Section 39-22-623, C.R.S.
2Pursuant to Article XXIV, Section 2, of the Colorado Constitution, 85 percent of the revenue from excise taxes (excluding transportation-related excise taxes) is constitutionally required to be credited to the Old Age Pension Fund, which funds a program offering financial assistance and medical benefits to low-income adults age 60 or older who meet certain eligibility requirements.  The amount of revenue collected from excise taxes far exceeds the amount required to fund the Old Age Pension program.  This excess revenue is allocated to the General Fund for spending on general operations at the discretion of the General Assembly.
3Section 39-28-110 (1), C.R.S.
4Section 39-22-623, C.R.S.
5Colo. Const. art X,  § 21.
6Section 24-22-117, C.R.S.
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