Colorado to decide whether to triple cigarette tax 


The state's second-highest court has rejected a Littleton woman's request to block the portion of a voter-approved ballot initiative that established a minimum price for cigarettes.

Jennifer Ann Smith filed suit against the state of Colorado and multiple officials following the passage of Proposition EE in the 2020 election. A key function of the initiative was to raise taxes on cigarettes and tobacco products, with the increased revenue going largely toward education. Smith claimed that, as a smoker who voted for Proposition EE, the state failed to adequately inform voters that one part of the initiative also would establish a $7 price floor for cigarettes.

A Denver judge last year declined to issue an injunction blocking enforcement of Section 10, as the price floor is known. Smith asked the Court of Appeals to overturn that ruling, claiming the law was passed in violation of the state constitution and that the judge mistakenly relied on projections of tax revenue that Colorado would lose if the minimum price for cigarettes went away.

On Thursday, a three-member panel for the Court of Appeals upheld the lower court's analysis.

"We cannot say that the trial court clearly erred by relying on these projections in finding that the state would lose millions of dollars if Section 10 were enjoined," wrote Judge Christina F. Gomez in the panel's opinion.

Proposition EE passed by a 2-1 margin in 2020. Proponents at the time argued that higher prices on cigarettes and tobacco products deter consumption, while opponents warned that low-income smokers would shoulder a substantial burden from the increase.

The initiative was based on House Bill 1427, but needed voter approval in addition to legislative passage due to the increase in taxes. Neither the ballot title that appeared before voters, nor the summary explanation of the impact a yes vote, would have indicated that the ballot initiative would enact a minimum price for cigarettes.

However, the ballot information booklet, known as the Blue Book, did note a $7 price floor per pack of 20 cigarettes beginning in January 2021, which would rise to $7.50 per pack in July 2024.

Smith alleged that the ballot title was faulty because it neglected to mention the Section 10 price floor, which she estimated would cost her an additional $700 annually on her cigarette purchases. It also created a second subject within the nicotine and tobacco taxation law. A price floor would raise the purchase price of discount cigarettes to the sole benefit of retailers, rather than to consumers or the government, Smith explained.

Beginning in late 2020, Smith pursued two lawsuits seeking to invalidate Section 10. One proceeded in federal court, with three manufacturers of discount cigarettes also listed as plaintiffs. That lawsuit alleges a violation of the U.S. Constitution's commerce clause, arguing Section 10's price floor discriminates against discount cigarette manufacturers. A judge is currently considering the government's motion to dismiss.

The second lawsuit, filed in Denver District Court, described an effort within the government allegedly to obfuscate Section 10 for voters in order to seal a deal with Altria, a producer of premium cigarettes whose more expensive products would become competitive once HB 1427's price floor raised the prices of discount cigarettes. Altria reportedly wanted the price floor in exchange for dropping its opposition to the increase in cigarette taxes.

"(I)f Altria cant get that, the deal might be in jeopardy," one strategist wrote in June 2020, according to an email Smith obtained for her lawsuit.

Smith asked District Court Judge Eric M. Johnson to grant an injunction blocking enforcement of Section 10 while the case proceeded. Johnson, in a January 2021 hearing, appeared sympathetic to the argument that the minimum price for cigarettes seemed unrelated to Proposition EE's representation to voters that it was a tobacco and nicotine tax measure.

"You have to admit at some level that Plaintiff has a point. This very unwieldy, lengthy, title very clearly deals with taxation. And a minimum price strikes you in your gut as, 'that’s different,'" Johnson said.

He ultimately declined to block Section 10. In order to qualify for an injunction, Smith had to satisfy six different factors, including that she was likely to succeed on the merits of her case and that there was a danger of irreparable harm. Johnson found that Smith had specifically failed to show how her $700 per year in extra cigarette costs outweighed the harm to the government of forgoing the revenue that voters overwhelmingly approved.

"The damages to Defendant, financially, would be in the millions of dollars," the judge wrote, "but more importantly the damage to Defendants as measured by impact on society would be incalculable given that a delay would undercut the intended effect of the legislation: the reduction in the number of smokers in Colorado, and the prevention of young people from ever starting."

During oral arguments before the Court of Appeals panel, Smith's lawyer maintained that sooner or later Section 10 would be invalidated as unconstitutional. Marc E. Kasowitz, the personal attorney for then-President Donald Trump who now represents Smith, repeatedly referenced the deal with Altria as grounds for finding Section 10 was misrepresented to voters.

"We have to review the decision he did make," said Judge Rebecca R. Freyre, referring to Johnson's conclusion that an injunction would disproportionately harm the state. "It's difficult for me to understand how the single subject and these other things relate to that."

The panel concluded that Johnson acted within his discretion by denying the preliminary injunction while the case proceeded.

An estimate from legislative staff forecast that Proposition EE would bring in $177 million of revenue in fiscal year 2021-22. The increase would largely come from the higher cigarette taxes, but the projection anticipated that Section 10's price floor would also increase tax revenue.

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