We asked our partners at the excise tax division over at DOR to put together some information for the industry on implementation of Proposition EE. Couple of important things
1. There isn't a floor stock tax effective January 1st.
2. For products that have never had excise tax assessed you or your supplier will need to become licensed distributors - This is especially important for Nicotine delivery systems. Retailers need to make sure that excise tax is paid on products that you receive to are the first seller into Colorado for after January 1st.
3. You will note the Service fee (vendor allowance) reduction. While the percentage was decreased this was designed to essentially net distributors the same amount of money that you received before the tax increase. CWPMA will be tracking that going into next year.
I want to thank Josh Pens, Stuart Zion, and Anthony Mueller and his excise tax team at DOR for putting this together and being responsive to our request.
Respectfully,
Grier
![]() Notice to Distributors of
Cigarettes, Nicotine Products and Tobacco Products
Due to the passage of House Bill 20-1427 and ballot measure proposition EE, effective January 1, 2021 the following changes will apply to cigarettes, nicotine products, and tobacco products.
What you need to know:
- Tax rate changes:
- Cigarettes: The tax rate is changing from 4.2¢ per cigarette or 84¢ per pack of 20 to 9.7¢ per cigarette that is not a modified risk tobacco product or $1.94 per pack of 20 and 6.45¢ per cigarette that is a modified risk tobacco product or $1.29 per pack of 20.
- The service fee is changing from 0.9526% to 0.2680% for cigarettes that are not a modified risk tobacco product and to 0.2016% for cigarettes that are a modified risk tobacco product.
- The next cigarette tax rate increase will be July 1, 2024.
- Cigarette tax stamp: The current cigarette tax stamp may be applied to cigarettes through December 31, 2020, and a new cigarette tax stamp will be available January 4, 2021, to reflect the tax rate increase.
- Nicotine products (e.g., e-cigarettes and other vaping products) that are not modified risk tobacco products are subject to a 30% excise tax of the manufacturer’s list price, and nicotine products that are modified risk are subject to a 15% excise tax.
- The service fee for nicotine products is 1.1%.
- The next nicotine products tax rate increase will be January 1, 2022.
- Tobacco products: The tax rate is changing from 40% to 50% of the manufacturer’s list price for non-modified risk tobacco products and to 35% for modified risk tobacco products.
- The service fee is changing from 1.665% to 0.96% for non-modified risk tobacco products and to 0.6857% for modified risk tobacco products.
- The next tobacco products tax rate increase will be July 1, 2024.
- Moist snuff is subject to a minimum tax of $1.48 per 1.2 ounce can.
- For container sizes smaller than 1.2 ounces the minimum tax is $1.48 per can.
- For container sizes larger than 1.2 ounces the minimum tax is proportionally increased.
- The service fee for moist snuff must be calculated on a per transaction basis.
- When the tobacco products tax is greater than the minimum moist snuff tax, the service fee rate is 0.96% for non-modified risk tobacco products and 0.6857% for modified risk tobacco products.
- When the minimum tax is greater than the tobacco products tax, the purchase of moist snuff is subject to the minimum tax, the service fee must be calculated for each purchase as follows:
- Determine the total minimum tax by multiplying the number of containers by the minimum tax rate (adjusted, if necessary, for container sizes in excess of 1.2 ounces).
- Multiply the taxable purchase price by 20%, and subtract the product from the total minimum tax, this is the net minimum tax.
- Multiply the net minimum tax by 1.6%. The result is the service fee amount.
- For example, a distributor makes the following moist snuff purchases: 100 1.2 oz. cans at $3.25/can and 100 2 oz. cans at $4.75/can for a total purchase price of $800. The tax due for each product is calculated as follows:
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100 x 1.2 oz. cans @ $3.25/can
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100 x 2 oz. cans @ $4.75/can
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Step 1: Calculate the regular tax due at 50% of the purchase price.
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Purchase Price = 100 x $3.25 or $325
Regular Tax = $325 x 50% or $162.50
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Purchase Price = 100 x $4.75 or $475
Regular Tax = $475 x 50% or $237.50
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Step 2: Calculate the total minimum tax rate by proportionally increasing the $1.48 minimum tax to the extent the container size exceeds 1.2 oz.
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Size is 1.2 oz.
Minimum Tax is $1.48 per can.
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Size is 2.0 oz.
Minimum Tax is (2.0 / 1.2) x $1.48 or $2.47 per can
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Step 3: Calculate the total minimum tax and determine whether minimum tax or regular tax is due.
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Minimum Tax = 100 cans x $1.48 or $148, which is less than the regular tax of $162.50
Regular Tax is Due
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Minimum Tax = 100 x $2.47 or $247, which is greater than the regular tax of $237.50.
Minimum Tax is Due
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Step 4: Deduct the vendor fee, which is 0.96% if the regular tax is due.
If the minimum tax is due, multiply the purchase price by the 20% tax rate imposed under C.R.S. § 39-28.5-102.5. Subtract this amount from the total minimum tax to calculate the net minimum tax. Multiply the result by the 1.6% vendor fee rate.
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Vendor Fee = $162.50 x 0.96% or $1.56
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Tax Levied per 39-28.5-102.5 = $475 x 20% or $95.
Net minimum tax = $247 - $95 or $152
Vendor fee = $152 x 1.6% or $2.43
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- New definitions:
- Delivery sale:
- A delivery seller is liable for the excise tax on delivery sales of cigarettes, nicotine products, and tobacco products.
- A delivery sale is a sale to a consumer when:
- The consumer submits an order to a delivery seller by means other than an over-the-counter sale on the delivery seller’s premises, including, but not limited to, orders made online, by phone, the mail, or by other services; and
- The cigarettes, nicotine products, or tobacco products are delivered when the seller is not in the physical presence of the consumer when the consumer obtains possession of the cigarettes, nicotine products or tobacco products by use of a common carrier, private delivery service, mail, or any other means.
- Delivery seller: A person outside the state of Colorado who makes a delivery sale.
- Nicotine products distributor:
- A nicotine products distributor is any person who:
- First receives nicotine products in Colorado, or
- Sells nicotine products in Colorado and is primarily liable for the nicotine products tax, or
- First sells or offers for sale in Colorado, nicotine products imported from another state or country, or
- Makes a delivery sale.
- If you qualify as a nicotine product distributor, you must apply for a nicotine product license by submitting the Nicotine Product Distributor Application, form DR 223, which is located on our website at
 Tax.Colorado.gov/cigarette-tobacco-products-forms.
- It is unlawful to engage in the business of being a nicotine products distributor after December 31, 2020 without first obtaining a nicotine products distributor license.
- A tobacco products distributor license does not permit the purchase of nicotine products.
- Modified risk tobacco products: Any tobacco product for which the Secretary of the US Department of Health and Human Services has issued an order authorizing the product to be commercially marketed as a modified risk tobacco product in accordance with 21 U.S.C. Sec. 387k, or any successor section. To see actions the Food and Drug Administration (FDA) has taken visit fda.gov/tobacco-products/advertising-and-promotion/modified-risk-orders.
- There is a separate definition for cigarettes, nicotine products, and tobacco products that are modified risk tobacco products.
- Tax stamp and Inventory tax:
- Cigarettes:
- There will not be an inventory tax for the tax rate increase effective January 1, 2021. Stamped cigarettes on-hand prior to January 1, 2021 will be taxed at the current rate and may be sold with the current stamps.
- It is unlawful to continue stamping cigarettes with current stamps after December 31, 2020. Unused stamps may be returned for credit, and new stamps reflecting the new rate will need to be purchased.
- A new stamp design will be created and made available to distributors after January 1, 2021 to reflect the $1.94 tax stamp for packs of 20 cigarettes. A new design will be created to reflect the $1.29 tax stamp for cigarettes that are modified risk tobacco products and are sold in packs of 20.
- The inventory tax applies to stamped cigarettes held in inventory at the time of the next tax increases after January 1, 2022. This means there is no inventory tax during the January 1, 2021 cigarette tax rate increase. The first cigarette tax rate increase that an inventory tax will apply to is on July 1, 2024.
- The inventory tax will apply to cigarettes in the possession of a cigarette wholesaler (distributor) and in the possession of wholesale subcontractors.
- Nicotine products and tobacco products: There is no inventory tax for nicotine products or tobacco products.
- Minimum price for cigarettes:
- The minimum price for cigarettes sold to consumers in Colorado is $7.00 per pack of 20 cigarettes or $70.00 per carton of 200 cigarettes, including all applicable taxes.
- The penalties for selling cigarettes below the minimum price is $500.00 for the first violation, $1,000.00 for the second violation, and $1,500.00 for the third violation within five years.
- Filing tax returns:
- Cigarettes: The cigarette tax return (form DR 221) will be revised in Revenue Online by January 29, 2021 to accommodate the new tax rates and modified risk stamp types.
- Nicotine products:
- A new return will be created for nicotine products distributors to file their nicotine products taxes through Revenue Online. Nicotine products distributors will receive filing information after their license is issued.
- The tax return for nicotine products will be a quarterly tax return due on the 20th of the month following the reporting period. The first due date is April 20, 2021 for the January 1, 2021 through March 31, 2021 reporting period. The return will be available by March 31, 2021.
- The return must be submitted electronically through Revenue Online.
- The payment must be submitted by electronic funds transfer (EFT). The authorization for EFT tax payments, form DR 5785, must be submitted with your application.
- Tobacco products: The tobacco products tax return (form DR 229) will be revised in Revenue Online including adding a spreadsheet entry option for distributors who purchase moist snuff, by March 31, 2021, the revised return is the January 1, 2021 through March 31, 2021 period and is due April 20, 2021.
- There will be a new schedule for moist snuff purchases, because moist snuff will have to be reported on a per transaction basis. The distributor will need to report the container size, the purchase price, and the number of containers purchased at that price. The distributor will also need to report if the transaction is exempt, a credit or is a “modified risk tobacco product”.
- Cigarette tax bond: If you have a cigarette tax bond, you must maintain a bond for your anticipated total monthly purchases of cigarette tax stamps
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- Changes Not Related to House Bill 20-1427 or proposition EE:
- This legislation does not affect any Master Settlement Agreement (MSA) or PACT Act reporting requirements. Nicotine products distributors are not required to submit MSA or PACT Act reporting for nicotine product purchases.
- On November 12, 2020, the Department’s website was upgraded with a new design.
- On January 3, 2021, Revenue Online will be upgraded to a new version, which will include a new user interface.
- The web address for Revenue Online, Colorado.gov/RevenueOnline, will remain the same.
Information about House Bill 20-1427 can be found at Leg.Colorado.gov/bills/hb20-1427. The Department is in the process of updating information on its website, Tax.Colorado.gov, and guidance publications, including: FYI Excise 15, FYI Excise 16, FYI Excise 17, and FYI Excise 22. The cigarette and tobacco rule, 1 CCR 201-7, is located at Tax.Colorado.gov/current-rules. For more information, contact the Excise Tax Accounting Section by submitting a Web Message through Revenue Online, emailing DOR_excisetax@state.co.us or by calling 303-205-6879 or 303-205-6848.
Respectfully,
Colorado Department of Revenue
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