Less than a year after the Basalt electorate overwhelmingly approved raising the minimum age for the purchase of tobacco products from 18 to 21, while simultaneously voting to increase municipal sales tax on all tobacco products, the specter of another election may be lurking on the horizon.
But, maybe not. There appears to be some confusion.
At issue is Colorado’s Taxpayer Bill of Rights, known by its ominous acronym, TABOR.
In April 2018, Basalt followed Aspen’s lead by becoming only the second town in the state to impose a municipal tax on cigarettes at the same time that it raised the minimum age for purchasing all forms of tobacco.
By merely placing the issue on the ballot — actually, by even entertaining the notion — both Basalt and Aspen lost out on revenue rebated to municipalities by the state government related to tobacco taxes collected within city limits.
Basalt Town Manager Ryan Mahoney estimated prior to last spring’s tobacco-tax-related ballot question, which passed 641-204, that the town would lose about $16,000 a year from the state.
That amount, however, would, according to initial estimates, be more than mitigated by the additional revenue generated by the new sales tax on tobacco products within town limits.
Last February, Mahoney estimated the new municipal tax — which added $2 per pack to the price of cigarettes and increased taxes on all other tobacco products by 40 percent — would raise approximately $29,000 per year. In addition, according to ballot language, the town would collect a licensing fee of $500 per retailer. Basalt currently has seven tobacco retailers, so that would add another $3,500 to the town’s coffers.
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 $16,500.
Those estimates were not only wrong, but they were way, way wrong.
According to Mahoney, “We have collected approximately $175,000 for the first six months of the tax.”
That means that the new tax has already generated eight times more than the town’s initial estimates. Were collection to continue through the year, that number would assuredly exceed $200,000.
This is where the sales tax collection spam has hit the TABOR fan.
Penn Pfiffner, chairman of the Denver-based TABOR Committee, is a man who has lived and breathed TABOR since it was first conceived in the late 1980s. After TABOR was passed into law by Colorado voters in 1992, Pfiffner served in the state legislature, where he was considered the resident TABOR savant. The man lives and breathes TABOR.
He contends TABOR’s language is unambiguous: If a governmental entity proposes a tax increase to its electorate that is based upon clearly articulated revenue-generation projections and the amount collected exceeds those projections, the governmental entity in question must halt collection of that tax and/or must rebate the fiscal overflow to its citizens — the latter alternative being a logistical nightmare because it would be difficult in the extreme to rebate $175,000 in tax to all the folks who bought smokes over the course of the previous six months. You’d likely have people driving to Basalt from as far away as Kansas holding their nicotine-stained hands out.
The reason for that component of TABOR, Pfiffner says, is to prevent unscrupulous governmental entities from BS-ing gullible constituencies with grossly under-inflated revenue projections in order to obtain passage of tax increases.
Because Basalt has already exceeded its original tobacco-tax revenue projections, the town government has told the seven businesses within the town limits that sell tobacco products that, as of April 1, they should stop collecting municipal sales tax on those products. The businesses will continue to collect state and federal tobacco taxes, but none of that money will be rebated to Basalt, as it was before the tobacco-tax election last spring.
Mahoney disagrees with Pfiffner’s interpretation of TABOR in this context, saying via email, “The TABOR issue exists for 2019 only. The Notice of Election that was submitted estimated the maximum dollar amount of the Tobacco Tax for 2019 only. The Town electorate approved and authorized the Town to collect, retain and expend all revenues of the Tobacco Tax for the fiscal years after 2019.”
Mahoney says Basalt will once again be legally able to start collecting sales tax on tobacco products beginning in 2020 — without the need for another election.
Basalt is not the only town dealing with TABOR in the context of municipal sales tax on tobacco products. Aspen is going through the same thing. But, while James True, city attorney for Aspen, agrees with Mahoney’s assessment regarding the need — of lack thereof — for a new election, he says Aspen will cover its bases by going to its voters once again in November.
“Although there are ways to address an error in the initial estimate of the amount of tax collected other than through an election, the Aspen City Council has directed staff to prepare a question to submit to the voters that would allow the City to retain the amount collected in the first year and to continue collection at the rate set in the initial election,” True said via email. “We believe that this complies with TABOR.”
One Basalt resident who is of the opinion that Basalt should also cover its posterior by holding a new election is Bernie Grauer, the ex-town council member who proposed both ballot issues and made tobacco his cause celebre last spring.
“I find it perplexing that Basalt and Aspen are taking two completely opposite positions regarding the cigarette taxes that were enacted last year,” he says. “Aspen is holding an election in November, while Basalt is stopping tax collection in April and is saying it does not need voter approval to reinstate the tax next year.
“I think they and their lawyers need to get their heads together to hash this out,” continues Grauer, who now serves on the Basalt Planning & Zoning Commission. “I don’t see how two totally contrary positions could be right.”
Grauer does not intend to sit idly by.
He plans to attend the March 25 Basalt Town Council meeting to suggest that the town “dot its I’s and cross its T’s” by holding another tobacco-tax-related question on the November ballot.
“I believe that would be the prudent course of action,” Grauer says. “Given the fact that the original tobacco tax passed last spring by a whopping 75 percent approval rate, I feel confident voters would support reenactment of the tax. I think it is very unfortunate that the council voted to stop collecting the tax in April, but I realize the town may not have any choice under TABOR.”
The question that of course begs is: How did Basalt’s estimates come to be off by an exponential factor?
“The Town used a calculation that was similar to that used by Aspen,” Mahoney says. “We were both forging ahead on unfamiliar territory being the first and second communities in the state to address this issue. The revenue collection is obviously something to address, which we now have, but is secondary to the public health crisis that continues to threaten our youth.
“TABOR permits municipalities to use ‘any reasonable method’ to effectuate a refund, including temporary tax credits or rate reductions,” Mahoney continues. “The administrative burden of temporarily suspending collections to avoid collecting in excess of the 2019 limit is far less than if we were to provide refunds after the fact.”
The tobacco-tax money thus far collected has been put to beneficial use consistent with the language of last April’s ballot question, according to Mahoney.
“We are permitted to use the money for tobacco-related education and health-related issues, and addiction and substance abuse education and mitigation,” he says. “This year, we have helped provide financial support for the Basalt schools for education for parents around substance abuse and vaping. As well, we have supported the Hope Center, which provides mental health services to our community, and finally we have partnered with other upper-valley communities, Pitkin County and Aspen Valley Hospital, to help provide a detox facility. All of these pursuits fit squarely within the allowable uses for the tax revenue. It is really a great change to see a community be able to provide for education, addiction and mental health support.”
Another aspect of last April’s tobacco-based election is enforcement.
According to Basalt Police Chief Greg Knott, per the wording of the resolutions, his department has taken over, from the state, enforcement of the town’s new tobacco ordinances. That use of dollars raised from the tobacco tax is permissible under TABOR because it was part of the ordinance wording.
“The [Basalt] Police Department is now responsible for enforcement of tobacco regulations per the adopted ordinance,” Knott says. “We have been active educating retailers and making sure their store setups are in compliance with the ordinance. We have not conducted any undercover operations or used underage operatives to make purchases. We will be using underage operatives in the future to make sure retailers are not selling nicotine products to people under 21 years of age.”
Coincidentally, the tobacco tax question comes on the heels of another TABOR-based case of heartburn for Basalt. In February, it came to light that the town had been overcharging property tax for at least 10 years, in clear and admitted violation of TABOR. The town is now sussing out what to do about that situation and there is a good chance Basalt voters will be asked in November to forgive the town’s oversight, estimated to be about $2 million.
The town is currently engaging in the process of circulating a questionnaire to residents regarding the property tax issue.
But Mahoney says the tobacco-tax issue is only peripherally related to that controversy.
“We were watching the numbers since the tax began in July of 2018,” he says. “Unfortunately, we had not received all of the revenues for the last six months, as some of the vendors were still catching up and adjusting their systems to collect and remit the tax. Additionally, we saw that Aspen had said that their numbers were higher than expected. Knowing that we used the same calculation, it was becoming apparent that we would need to look at the issue and make any necessary adjustments.
“We will talk about this with Council and discuss ways that this money can be put to work as it was intended,” Mahoney continued. “We do not do enough as a country to support mental health. In fact, we are in crisis. The Town of Basalt is taking the lead to help effectuate change. I hope we can make a marked positive difference in the lives of the people in this community and I would argue, from the results of the [April 2018] election, our community believes that we can.”
Grauer intends to take that perspective one step further when he addresses the Basalt Town Council on March 25. He says he plans to admonish the council to once again follow Aspen’s lead by putting a question on the November ballot that would prohibit the sale of all flavored tobacco products — including vaping, e-cigarettes, snuff, chewing tobacco and even menthol cigarettes — within Basalt town limits. He says those products entice young people to take up the tobacco habit.
“If we can just save a small additional percentage of potential youthful nicotine users from cancer, heart disease, emphysema and chronic pulmonary disease, then the prohibition will have been worth it,” Grauer says.
In the meantime, the question of the impact of the soon-to-be-suspended municipal tax on tobacco products on actual sales is clearly up in the air, considering the unexpected amount of revenue the tax has generated.
When asked if the tax has negatively impacted his sales of tobacco products, Gonzalo ‘Gonzo’ Mirich, owner of Jimbo’s Liquors in downtown Basalt, said simply, “not really.”