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Colorado cigarette tax break in trouble

Smokers are under additional fire in Colorado.

First, they've been paying more for their smokes since the federal tobacco excise tax was hiked on April 1. Now, some Rocky Mountain State lawmakers want to repeal their state's 50-year-old sales tax exemption on cigarettes.

True, Colorado does collect its own excise tax. But since the middle of this century, smokers haven't have to pay the state's sales tax for their packs. That levy currently is 2.9 percent.

But that tax break might soon change.

Cigarette smoke smoking (3) Democrats in the Colorado legislature are pushing to eliminate the state's sales tax exemption. Taxing purchases of cigarettes, they say, will raise $38 million.

That's a enticing figure for a state that's looking at a $300 million budget shortfall.

But don't panic nicotine freaks. The deal isn't done.

Republican lawmakers are likely to oppose efforts to add a new tax to Colorado's tax code.

Opponents to the proposed sales tax also argue that the move could backfire. Subsequent reduced demand for cigarettes, they say, will cost the state money from the Tobacco Settlement Agreement and from the Colorado's own tobacco excise tax, which was increased to 84 cents a pack in 2005.

The National Conference of State Legislatures acknowledges that states do pay a price when any taxes are increased, but says that such a revenue loss is usually short-term: "Increasing a cigarette excise tax can result in stockpiling of cigarettes prior to the implementation of the tax and a temporary drop in sales immediately following the tax increase."

Compare, contrast taxes: The Tax Foundation's Tax Policy Blog examines the differences, and effects, of a general sales tax and an excise tax

"Excise taxes and sales taxes are two very different types of taxes with different purposes and different standards for their application. The two should not be confused," writes Tax Policy Blog's Mark Robyn.

Cig excise taxes nationwide: How does your state stack up when it comes to cigarette excise taxes? The National Conference of State Legislatures has put together the map below (or this table if you prefer text) to give you an idea.

Cigarette excise tax map (2)
Cigarette excise tax map legend (2)

Smokers in New York and New Jersey pay the highest excise taxes, at $2.75 per pack in the Empire State and $2.575 a pack in the Garden State.

And it's no surprise that a traditional tobacco growing state, South Carolina, levies the lowest cigarette excise tax. In the Palmetto State, only 7 cents is added to each pack.

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