Colorado Weighs In: Blunt Wraps Not Taxable

If Department of Revenues across the country always had their way, then anything containing even the smallest amount tobacco would be considered a “tobacco product.” Thankfully for the tobacco industry, we have a legal process that can put a halt to many agency final determinations. In Creager Mercantile Company, Inc. v. Colorado Department of Revenue, the Colorado Department of Revenue (“DOR”) issued a final determination stating that Blunt Wraps sold by Creager Mercantile Company (“Creager”) were within the meaning of the statute. Essentially, the DOR claimed by itself that blunt wraps were taxable so that it could receive more revenue. This would mean that every tobacco products other than cigarettes would be taxed at 40% of the manufacturer’s list price. The Taxpayer decided to fight back.

Beginning in December 2006, the DOR had a fabulous idea that it would issue an FYI Notice to all taxpayers stating that it, miraculously, would begin considering all products containing any amount of tobacco to be “tobacco products” within the meaning of the statute. This “FYI” is a complete headscratcher, as the sole body responsible for creating statute is the Colorado legislative body—think back to middle school civics class. The DOR on its own terms unilaterally decided to drive up their own revenue stream by taxing more tobacco products. Thus, we have the case at hand. Although three issues were raised on appeal, the appellate court agreed with the first claim that blunt wraps are not “tobacco products” within the meaning of section 39-28.5-101(5),Colorado Statutes.

To tackle the issue as to whether blunt wraps are included in the “tobacco products” definition, the court in Creager broke down its analysis into three parts: 1) First, in interpreting tax statutes, the court must resolve doubts in favor of the taxpayer; 2) When a general term follows a list of things in a statute, we apply the principle of ejusdem generis; and 3) Consider the other provisions relating to tobacco products in their relation to their other realms of statutory law. Essentially, the court in Craeger clearly understood the nature of taxing statutes in the long-standing rule that taxing power and taxing acts are strictly construed against the taxing authority and in favor of the taxpayer. Carrying this philosophy through their analysis as well as the fact any doubt must be resolved in favor of the taxpayer, the court began their interpretation of the phrase “other kinds and forms of tobacco, prepared in such a manner as to be suitable for chewing or for smoking in a pipe or otherwise.”

The Court looked at the definitions for the particular taxing statute. Clearly, the DOR failed to carefully read the definition of “tobacco products” before it unilaterally decided to tax all products. The Colorado legislature specifically identified several types of cigars, chewing tobacco, and other types of tobacco used for a pipe or hand-rolled cigars or cigarettes as part of “tobacco products.” What is missing from this definition? Blunt wraps.

Think about what a blunt wrap is used for; a blunt wrap is not intended to be use by itself, a blunt wrap is intended to be used as a source for consuming other tobacco products. The items listed in the “tobacco products” statute are items that may be consumed, clearly blunt wraps fall outside this category. Due to the fact that the blunt wraps fall outside the consumption categories listed in the statute, the rule of ejusdem generis—rule of interpretation where a class of general wording must be follow and cannot be expanded upon—must be used to exclude blunt wraps from the “tobacco products” definition.

To once again expand on the fact that the Colorado DOR was attempting to read in language that was not there, the court followed the legislative history of the “tobacco products” in its use outside the taxing realm. “Tobacco products” have been consistently expanded upon since its introduction in 1987 Colorado criminal code. Since then, “tobacco products” definition has gone from any product containing tobacco intended for usage to being replaced with the broader terms of any “cigarette, tobacco product, or nicotine product.” In comparison to the taxing statute of “tobacco products,” the definition has remained the same since its enactment. Clearly, the tax context of the term “tobacco products” has a much narrow meaning than the criminal context. Had the Colorado legislature intended to broaden the taxing statute, then it would have done so. Therefore, the court in Creager ultimately made the proper determination that the Colorado DOR was once again starving for greater revenue streams and unlawfully decided to expand the statute on its own.

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See also - Brandys Products v DBPR - Florida Blunt Wraps Case


About the author: Mr. Donnini is the president and founder of Tobacco Tax Refunds, Inc. He is also multi-state sales and use tax attorney and an associate in the law firm Moffa, Gainor, & Sutton, PA, based in Fort Lauderdale, Florida. Mr. Donnini has extensive knowledge handling wholesale tax controversey and refunds.

In his law practive Mr. Donnini's primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini obtained his LL.M. in Taxation at NYU. Mr. Donnini is licensed to practice law in Florida. If you have any questions please do not hesitate to contact him via email [email protected] or phone at 954-639-4496.