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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 three 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.  In 2020, voters again approved an additional cigarette tax with the passage of Proposition EE.  The additional tax under Proposition EE is 5.5¢ per cigarette in 2021, and increases incrementally, to 9¢ per cigarette, until 2027 when it is fully phased in.  The Department of Revenue is responsible for administering the three taxes, which are collected in practice as a single tax of $1.94 per pack of 20 cigarettes.  Distributors, including out-of-state retailers selling cigarettes online, 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. They are entitled to retain 0.4 percent of taxes they collect to cover expenses related to tax collection.

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

 

Tax Rate

Cigarettes are taxed at 9.7¢ per cigarette ($1.94 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. Since a change in statute in 2019, local governments may impose fees or license requirements on cigarette sellers without losing their share of state cigarette tax revenue.  No tax exemptions or credits are available for cigarettes.

 

Distribution

With the exception of Proposition EE revenue, for which collection and distribution began in 2021, 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 and the Proposition EE 5.5¢ 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  Proposition EE revenue is also distributed to K-12 education, housing, rural schools, and tobacco prevention programs. Starting in 2023, revenue will go primarily to preschool programs, in addition to tobacco prevention and health care programs.5   A majority of Amendment 35 revenue is distributed to health care and tobacco prevention programs, as required by the Colorado Constitution.6,7 

         

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 above the national average, ranking 24th among the 50 states as of 2021.  New York and Connecticut levy the highest state excise tax at $4.35 per pack of 20 cigarettes.  Missouri levies the lowest state excise tax at 17¢ per pack.

Among local governments, as of 2021 Chicago levies the highest tax, at $7.16 per pack, while at $5.94 per pack, Glenwood Springs, Carbondale, Eagle County, and Summit County rank in the top 10.
 

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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.
22Pursuant 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.  The excess revenue from the original 1¢ statutory tax is allocated to the General Fund for spending on general operations at the discretion of the General Assembly.  The excess revenue from the additional Proposition EE tax is allocated to the General Fund and the to the 2020 Tax Holding Fund and then distributed for specified purposes as described.
3Section 39-28-110 (1), C.R.S.
4Section 39-22-623, C.R.S.
5Section 24-22-118, C.R.S.
6Colo. Const. art X,  § 21.
7Section 24-22-117, C.R.S.
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