The town of Basalt will suspend collections of a tax on cigarettes and tobacco products for the remainder of 2019 after the first quarter because it is raising more revenue than anticipated, officials said last week.
Town voters approved a tax in April 2018 that adds $2 to the price of a pack of cigarettes and 40 percent to other tobacco products.
At the time of the election, the town government estimated that the tax would raise between $27,000 and $29,000 in 2019 — the first full year of implementation. However, it became evident last year that the tax was generating a significantly larger amount, according to Town Manager Ryan Mahoney. There was no way to accurately assess how much revenue would be raised because the tax was new, he noted.
As a result, the council held a closed session Tuesday night to determine how to maintain compliance with the Taxpayers Bill of Rights, or TABOR, limits. That amendment to the state Constitution limits revenue growth and requires a vote for new taxes. To make sure it complies with TABOR, the council decided to suspend collections for 2019 starting in April, Mahoney said.
The tax was implemented in July. It is estimated it raised more than $90,000 in 2018, according to Christy Hamrick, the town’s finance director. Projected over an entire calendar year, the tax could raise about $200,000 based on sales from July through December 2018.
Mahoney said the 2019 revenue is the only one that presents a problem because the town estimated revenue at no more than $29,000. The language in the ballot question said the town can “collect, retain and expend all of the revenues of such taxes and the earning thereon, notwithstanding the limitation” of TABOR. Therefore, the tax will be reimplemented in 2020 and all revenue can be retained, he said.
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Basalt is being particularly careful on TABOR issues since the staff discovered the town has raised the general fund property tax mill levy 10 times since 2005 without voter approval. While town voters approved a measure in 1994 that eases the restrictions of TABOR, increasing the mill levy might have violated the provision. The town has hired outside experts on TABOR to investigate the issue.
The town will determine this summer if it will put a question on the November ballot asking residents to let it keep the tax revenue that was potentially overcharged. If rejected, the town may have to refund the taxes for the past four years that the mill levy raised without voter approval.
Meanwhile, the town didn’t want another potential TABOR issue to arise with the tobacco tax revenue.
The city of Aspen is experiencing a similar bounty of revenue via the tobacco tax. City voters approved a $3 tax on a pack of cigarettes and a 40 percent tax on other tobacco products in November 2017. It estimated it would collect $325,000 last year. Actual collections came in at $436,000.
The city is contemplating a possible refund or going to voters to seek permission to keep the excess revenue. So far, it has not discussed suspending the tax this year as a solution.
Nine retailers sell tobacco products in Basalt. The tax on tobacco sales has been earmarked for tobacco prevention programs in Eagle County that target youth ages 12 through 18.