A new nicotine tax and an increased tax on cigarettes and other tobacco products in Colorado generated more than $34 million in their first five months, according to a data analysis by The Colorado Sun.
Proposition EE, which was passed by voters in November, went into effect in January, raising the taxes on a pack of cigarettes to $1.94 from 84 cents. The ballot measure will continue to increase nicotine, tobacco and cigarette taxes in Colorado through 2027, when they level out.
By comparison, Colorado collected about $187 million in cigarette and tobacco taxes in the 2019-20 fiscal year.
It appears Colorado won’t meet the $87.4 million nonpartisan legislative analysts estimated Proposition EE would collect in its first six months. One reason may be that some consumers stocked up on cigarettes before the new taxes went into effect.
Colorado cigarette sales soared in December according to data from the Colorado Department of Revenue. The state collected nearly $28 million in cigarette taxes under Amendment 35 that month, compared with November and in October, when it collected $12 million each month.
“It’s possible that this increase in December 2020 revenue is causing the cigarette revenue in the first few months of 2021 to be lower than expected,” said Daniel Carr, a spokesman for the revenue department.
Tax-collection data for June won’t be available until later in July.
Proposition EE was pitched as a way to fund preschool slots in Colorado, but money from the ballot initiative won’t start going to that cause until the 2023-24 fiscal year. In the first three fiscal years, the revenue from the new and increased taxes will be split between the state’s K-12 education fund, rural schools and housing assistance.
Health advocates see the ballot measure as a way to reduce tobacco and nicotine use, citing studies that show how higher prices can reduce consumption.
The next tax increase under Proposition EE will come in January, when taxes on the manufacturer’s list price for nicotine products rise to 35% from 30%. Before the ballot measure, Colorado had no tax on nicotine products, like vaping fuel and e-cigarettes.
Proposition EE also enacts a so-called minimum-price provision mandating that a pack of cigarettes be sold for no less than $7 and a carton for no less than $70 through.
The discount cigarette company Liggett Vector Brands Inc. filed lawsuits in federal and state court challenging the ballot measure, claiming the minimum-price provision violates competitiveness laws. The legal actions are still pending.
The Colorado Sun obtained emails showing that Gov. Jared Polis’ office was asked to meet several conditions insisted upon by Altria in exchange for the tobacco giant, which owns Marlboro, agreeing not to fight legislation that put Proposition EE on the November 2020 ballot. Altria and Liggett Vector Brands are competitors.