Are blunt wraps taxable “tobacco products”? Are they “suitable . . . for smoking in a pipe or otherwise”? On May 15, 2017, the Supreme Court of Colorado answered both questions in the affirmative, handing down its decision in Colorado Department of Revenue, et al. v. Creager Mercantile Co., No. 15SC226.
The case had been before several Colorado tribunals. The Colorado Department of Revenue (“the Department”) audited Creager Mercantile Co. (“Creager”) and issued an assessment and a notice of deficiency with respect to Creager’s having sold blunt wraps without collecting Colorado’s “tobacco products” excise taxes. The Department made a final determination against Creager, the trial court affirmed, the Colorado Court of Appeals reversed in Creager’s favor, and a four-to-three majority of the Supreme Court of Colorado reversed the Court of Appeals to find in the Department’s favor.
The products at issue were blunt wraps, which “are made from pulverized, homogenized tobacco leaves mixed with vegetable gum, and contain between thirty and forty-eight percent tobacco.” The majority likened blunt wraps to “traditional rolling papers” in that they are to serve as the roll in which tobacco is filled and smoked. “When smoked, the Blunt Wrap is consumed along with the additional tobacco or other smoking material.”
The excise taxes’ corresponding definition of taxable “tobacco products” includes “a broad variety of ‘tobacco products.’” Specified among them are “various forms of both smoking and smokeless tobaccos” and “various forms of tobacco scraps.” Finally, there is (what the majority called) “a catchall category.” As pertained to this case, the “catchall” includes “other kinds and forms of tobacco, prepared in such manner as to be suitable . . . for smoking in a pipe or otherwise.” The statute does not specify blunt wraps. Blunt wraps did not even exist when the statute was enacted. Accordingly, the Court focused on the “catchall.”
The parties agreed that the blunt wraps were “kinds” or “forms” of tobacco, so the central issue before the Court was whether they were “suitable . . . for smoking in a pipe or otherwise.” The majority concluded that the blunt wraps’ “combin[ation] with additional tobacco or other smoking material does not change the fact that the tobacco in the Blunt Wrap itself is also consumed by the act of smoking.” Nor did the statutory definition “require the product to be capable of being smoked ‘on its own.’” Thus, the Court held that the blunt wraps were “tobacco products” and subject to the excise taxes. “We will not substitute or add words to statutes.”
Because it considered both the majority’s interpretation and the alternative to be reasonable, the dissent concluded that the so-called “catchall” was ambiguous. As for the alternative, the statute’s uses of “prepared,” “suitable,” and “smoking” could reasonably yield an interpretation that “‘prepared in a manner as to be suitable for . . . smoking in a pipe or otherwise’ requires an intent to make Blunt Wraps ready for use on their own in a pipe or otherwise for the purpose of inhaling and exhaling tobacco fumes.” Thus confronted with “two reasonable, competing interpretations,” the dissent would have resolved the ambiguity on two principles of statutory construction:
- “courts must construe taxation statutes narrowly in favor of the taxpayer,” and
- a general term is limited by the class of specific terms preceding it in a list.
Invoking the second principle, “[e]ach of the products specifically enumerated . . . can be smoked or chewed on their own,” but “Blunt Wraps are akin to the pipe or rolling paper—they are the delivery vessel. .” They were not, therefore, taxable “tobacco products,” the dissent opined.
To be sure, this was a difficult case. Whatever the outcome, there was a remarkable divide between the members of the bench who reviewed the case. In total, four Justices and one District Court Judge found the excise taxes applicable, and three Justices and three Court of Appeals Judges would not have applied the excise taxes.
The case was also a significant one. It is daunting that the excise taxes—a twenty percent statutory tax on list price, with twenty percent more added under a constitutional provision—have been imposed upon blunt wraps only so recently yet also so contrary to seemingly-settled expectations. Creager had been distributing blunt wraps since 2003, and the Department even audited it in early 2004. No tax assessment came of that audit. The audit giving rise to the litigation did not occur until 2007, and although the Department sought to extend its reach by regulation in 2014, only now is there clarity whether those audited blunt wraps’ were taxable “tobacco products” in Colorado.
For that matter, the views expressed in the case may influence other state courts addressing questions whether blunt wraps are taxable “tobacco products.” Colorado’s statutory definition is hardly uncharacteristic, and the courts of other states will be free to determine for themselves whether the majority or dissent expressed the more persuasive view in Creager Mercantile Co.
For the full opinion, please see
For a video of the oral argument, please see