It might seem counter-intuitive that a proposal to increase taxes could end up costing a town money, but that’s exactly what may happen if Basalt follows through on discussions to become the second municipality in Colorado — after Aspen — to raise taxes on the sale of tobacco products within its boundaries.
No one quite knows what will happen on the fiscal front if Basalt follows Aspen’s lead.
On Jan. 1, Aspen became the first town in the state to impose a municipal tax on tobacco products.
During the Nov. 7 election, nearly three-quarters of Aspen voters backed a city proposal to impose higher local taxes on cigarettes and other tobacco products.
Almost immediately thereafter, Basalt council member Bernie Grauer proposed that Basalt follow Aspen’s lead by increasing the tax on tobacco products sold within the town limits.
The price of a pack of cigarettes in Aspen increased by $3 on Jan. 1 and will continue to go up 10 cents each year until the local tax hits $4. Meanwhile, a new 40 percent tax on other tobacco products, including vaping devices and smokeless tobacco, also took effect with the new year.
The Basalt Town Council will formally entertain Grauer’s tobacco-tax-increase proposal Tuesday night at its regular meeting.
If the proposal, presented in resolution form — meaning it does not have to go through a first and second reading, as well as a public comment — passes, it will be placed upon the town’s April 3 election ballot.
The numbers will mimic Aspen’s.
According to a background memo prepared by Town Manager Ryan Mahoney, only time will tell exactly how much the enactment of the resolution might end up costing Basalt, though one thing is clear: $16,000 of annual revenue from the state will go away.
That amount is based upon money the state collects in tobacco tax that is rebated to the town.
Any town that opts to add its own sales tax on tobacco products gets its state tax rebate nixed.
That amount, however, might be mitigated by the additional revenue generated by the new sales tax on tobacco products.
According to Mahoney’s memo, “The addition of a local tax to tobacco products is estimated to bring in approximately $29,000 per year. In addition, the town would collect a licensing fee of $500 per retailer. The town currently has nine retailers, so this would add another $4,500.”
So, at least on the surface, it would seem that a new tax on tobacco products in Basalt would result in a net increase of about $17,500.
Not so fast.
Mahoney writes in his memo that there are other considerations.
“In addition to the loss of [state] tobacco tax revenue, the state would no longer do any enforcement of the age law, collect taxes or administer licensing,” Mahoney’s memo states. “We believe that at least four departments would be affected by the change … police, finance, clerk and administration. Finance would be affected most as a self-collection system would need to be created. The clerk would be in charge of licensing and renewals. Administration would be involved with determining the distribution of funds to qualifying agencies, public outreach, coordination of meetings, etc.”
It is unclear how many staff hours would be required to administer the new tax.
The final resting place for any new funds generated by the proposed tobacco tax is purposefully vague.
“It has been suggested (as Aspen) did that this money should be earmarked for a particular use,” Mahoney wrote in his background memo. “In this case, we are focusing on youth (aged 12-18) and trying to prevent them from ever starting tobacco use. We are proposing ballot language that would be general enough to allow the town to earmark the money for youth services such as addiction, mental health and, of course, tobacco prevention.”
The actual wording of the proposed resolution is: “The tax revenues shall be used for specific purposes of financing tobacco related education and tobacco related health issues and addiction and substance abuse education and mitigation.”
That is in tune with Grauer’s original proposal.
“I made this proposal because I would like to do something to help curb tobacco use,” Grauer said in November. “I think this is something that would result in an overall increase of health in the community. This is not just a tax grab. Young people’s funds are limited. By raising the price, it would obviously make it harder for them to purchase tobacco products.”
One aspect of Grauer’s original proposal is not part of the proposed tobacco-tax resolution.
He stated in November that Basalt, like Aspen, should raise the minimum legal age to purchase tobacco products within town limits to 21.
He said last week via email that the discussion about raising the legal age to buy tobacco products in Basalt to 21 “can wait till a later meeting. The council can initiate the age-21 requirement by passing an ordinance at any time.”
He did not state a reason for separating the proposed tax increase from raising the minimum age to buy tobacco products.
Grauer stated in November that he hoped, by Basalt following Aspen’s lead, it would cause other jurisdictions in the Roaring Fork Valley to likewise consider raising taxes on tobacco products, as well as raising the minimum age to buy tobacco products to 21.
“I’m thinking of bringing this to the other councils in the valley, to Carbondale and Glenwood Springs,” he said.
Though he is still conducting research, Grauer said he is convinced that raising the price of tobacco products causes a decline in use.
“It has been proven repeatedly that, every time tobacco taxes go up, use goes down,” he said. “That is based upon decades of research.”
That view is echoed by R.J. Ours, Colorado government relations director for the Cancer Action Network.
“Making smoking and tobacco use more expensive is a scientifically proven deterrent that keeps youth from taking up the habit, while giving adults more incentive to quit,” Ours said prior to the tobacco tax election in Aspen.
Grauer has at least conceptual support from fellow Basalt town council members.
“This is a worthwhile concept and an appropriate path for a number of community needs,” Mayor Jacque Whitsitt said shortly after Grauer first announced his proposal in November. “I am leaning towards some version of this.”
Added Basalt town council member Auden Schendler, “While I'm concerned about the fact that it’s a regressive tax, the truth is these sin taxes tend to work, and we want to discourage tobacco use, and there are broad public health benefits. So, I’ll support this with the idea that there’s more good than harm to it.”