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The town of New Castle will no longer collect its voter-approved tobacco sales tax, possibly for the remainder of year. According to a statement issued by the town, revenue generated from the tax during the months of January and February were trending in a direction that, if allowed to continue, could surpass the $65,000 threshold voters approved last year.

In November, New Castle residents overwhelmingly supported Ballot Issue 2B. Beginning Jan. 1, the town started collecting $3.20 on every pack of cigarettes sold.The successful ballot issue also imposed a 40% sales tax rate on all other tobacco and nicotine items, including vaping products. “There’s really a lot of difficulty in trying to return a sales tax,” David Reynolds, New Castle town administrator, said. “The whole point is we’re trying to avoid that.” TABOR prohibits state and local governments from raising taxes without voter approval.

Because New Castle’s tobacco tax specifically asked voters to approve a tax increase of “up to $65,000 in 2020,” the town cannot collect more than that amount. Following 2020, however, the town does not have to adhere to that $65,000 cap. “Vendors have been notified to stop collection,” Reynolds said. “Depending on their point of sale systems and depending on their corporate locations, it might take a little while to implement.”

Due to the small number of businesses that sell tobacco and nicotine products in New Castle, Reynolds could not comment on the specific amount the tax had generated since January. “We can’t do anything that would give a hint as to what vendors collected what amounts,” Reynolds said. According to Reynolds, the town could reinstate the tobacco tax before the end of 2020. However, that all depends on how much tobacco tax revenue was generated before the tax holiday was instituted. “I have no way to know what was collected in the month of February until the end of March,” Reynolds said. “We are confident that we took all of the steps that we possibly could … to protect us from over-collecting what the voters authorized.”

Mayor Art Riddile said the $65,000 estimate was based on the tobacco tax dollars the town had previously received from the state. “We took a stab in the dark and doubled it,” Riddile said. “This is obviously an unintended consequence.” Riddile said the initial intent of the tax was to get people to cutback or quit smoking altogether. “We wanted to get on that bandwagon for health and wellness,” Riddile said. Revenue generated from the tax will fund community health, wellness and youth programs per the ballot’s language.

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