Colorado voters will be asked in Nov. 2023 whether to allow the state to retain revenue above the estimated revenue generated from increased taxes on cigarettes and tobacco and nicotine products established by Proposition EE, which was approved by voters in 2020.
Proposition EE increased cigarette and tobacco product taxes and created a new tax on nicotine products such as e-cigarettes. The 2020 Blue Book (ballot information booklet) estimated $176 million in state revenues to be generated from Proposition EE. Actual revenue from the tax increases exceeded this amount by about $24 million.
The Colorado Taxpayer’s Bill of Rights — also known as TABOR — requires voter approval of increases to the state’s revenue. Because actual revenues generated by Proposition EE exceeded the estimated revenues set out in Proposition EE as approved by voters in 2020, voter approval is required to allow the state to retain the revenue above the estimated revenue.
The 2023 ballot measure will ask voters to allow the state to retain the revenue above the projected estimates for Proposition EE and dedicate it (in the amount of $23.65 million) to the universal preschool program. If voters reject the measure, the state will refund $23.65 million to tobacco distributors and wholesalers and reduce the tobacco tax rate by 11.53%.
Proposition EE, approved by voters in 2020, was designed to incrementally increase cigarette and tobacco product taxes and create a new tax on nicotine products such as e-cigarettes. Before Proposition EE was adopted, cigarettes were taxed at a statutory rate of 20 cents per pack (one cent per cigarette). Additionally, Amendment 35 of 2004 authorized an additional constitutional tax of 64 cents per pack (3.2 cents per cigarette), for a total state-levied cigarette tax of 84 cents. Proposition EE was designed to incrementally increase the statutory cigarette tax rate to $1.80 per pack by July 2027, thereby increasing the total state-levied cigarette tax to $2.64 per pack. Proposition EE was also designed to set minimum price requirements for cigarettes.
In Colorado, tobacco products (cigars and tobacco designed to be chewed or smoked in a pipe) were taxed at a statutory rate of 20% of the manufacturer’s list price (MLP) and a constitutional rate of 20% of the MLP for a total rate of 40% of the MLP. Proposition EE was designed to incrementally raise the statutory tax rate by 22 percentage points by July 2027 for a new total state-levied tobacco products tax rate of 62% of the MLP.
Prior to Proposition EE, in Colorado, nicotine products such as e-cigarettes were not taxed. Proposition EE created a tax on nicotine products that were set to match the tobacco products tax rates. The rate began at 30% of the MLP in 2021 and was set to increase gradually to 62% of MLP by July 2027.
Proposition EE revenues were set to be dedicated to health and education programs including the following:
- Preschool programs cash fund;
- State education fund;
- Rural schools cash fund;
- Housing development grant fund;
- Tobacco tax cash fund;
- Tobacco education programs fund; and
- State general fund.
Voters approved Proposition EE in a vote of 67.56% in favor to 32.44% opposed.
Since 1992, when TABOR was adopted, through 2022, Colorado voters have decided on 27 statewide ballot measures that would have increased revenue for the state, which required voter approval under TABOR.
*Eight measures asked voters if the state could retain revenue as a voter-approved revenue change that would have otherwise been refunded to taxpayers under TABOR;
*Five measures asked voters to adopt a new tax;
*Two measures asked voters to eliminate a tax exemption (thereby raising state revenue);
*One measure asked voters to reduce income tax deduction amounts;
*Nine measures asked voters to adopt a tax increase;
*One measure asked voters to adopt a tax increase and new tax; and
*One measure asked voters to adopt a tax increase and eliminate a tax exemption.
Eight (29.6%) of the 27 measures were approved while 19 (70.3%) were defeated.
- Colorado Taxpayer’s Bill of Rights (TABOR)
- Colorado Proposition EE, Tobacco and E-Cigarette Tax Increase for Health and Education Programs Measure (2020)