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Tobacco Products Tax

Table of Contents

Background

The state excise tax on tobacco products was enacted in 1986 and expanded in 2004.1  The tax applies to all tobacco products other than cigarettes, including cigars, pipe tobacco, chewing tobacco, and snuff, at the time when they are manufactured, brought into the state, or shipped to retailers.  The tax is based on the invoice price of tobacco products sold from a manufacturer or supplier to a distributor, prior to discounts or other price reductions.

The tax on tobacco products consists of two components.  The first is a 20 percent statutory tax enacted in 1986, revenue from which is subject to the limitations of the TABOR Amendment.  Voters approved an additional 20 percent tax with the passage of Amendment 35 in 2004, the revenue from which is exempt from the TABOR limitations on state revenue and spending.

The Department of Revenue is responsible for administering both tax components, which in practice are collected as a single 40 percent tax.  Tobacco product distributors must file a quarterly tobacco products tax return by the twentieth day of the first month of the quarter following collections.  Tobacco product distributors are entitled to retain 3.33 percent of taxes they collect to cover expenses related to tax collection.

 

Tax Rate

The tax rate on tobacco products is 40 percent of the invoice price paid by distributors to manufacturers or suppliers.  In addition, all tobacco products are subject to the 2.9 percent state sales tax as well as any applicable local and special district sales taxes.  No tax exemptions or credits are available for tobacco products.

 

 

Distribution

The distribution of revenue from the tobacco product tax and cigarette tax is illustrated below.  Through the Old Age Pension Fund, revenue from the original 20 percent tax on tobacco products is credited to the General Fund.2  The additional 20 percent tax resulting from the passage of Amendment 35 is constitutionally required to be distributed primarily to funds that provide moneys toward health care and tobacco prevention programs.3

Federal Taxes

The federal government collects excise taxes on tobacco products that are assessed at fixed-dollar amounts rather than at a percentage.  Tax rates differ by tobacco product.  The highest rate applies to “roll‑your‑own” tobacco, assessed at $24.78 per pound, or $1.55 per ounce.  Pipe tobacco, snuff, and chewing tobacco are taxed at $2.83, $1.15, and $0.50 per pound, or $0.18, $0.07, and $0.03 per ounce, respectively.

 

State Comparisons

All 50 states tax tobacco products. Like Colorado, most states levy ad valorem (percentage of the value) taxes on wholesale or manufacturers’ prices.  Among these states, Minnesota and Washington levy the highest taxes (at a rate of 95 percent), while South Carolina assesses the lowest rate (5 percent).  Seven states tax fixed-dollar amounts on quantities of cigars and/or chewing tobacco.

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1Section 39-28.5-101, et seq., C.R.S., and Colorado Constitution Article X, § 21
2Section 29-28.5-108 (1), C.R.S.
3Colo. Const. art X, § 21 (5).
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