Colorado Department of Revenue and Barbara J. Brohl, in her official capacity as Executive Director of the Colorado Department of Revenue, Petitioners
Creager Mercantile Co., Inc. Respondent
to the Colorado Court of Appeals Court of Appeals Case No.
Attorneys for Petitioners: Cynthia H. Coffman, Attorney
General Frederick R. Yarger, Solicitor General Robert H.
Dodd, Jr., Senior Assistant Attorney General Denver, Colorado
Attorneys for Respondent: Edward Dale Parrish, LLC Edward
Dale Parrish James W. Noland Golden, Colorado Blain Myhre LLC
Blain D. Myhre Englewood, Colorado
Attorneys for Amicus Curiae McLane/Western, Inc.: Morrison
& Foerster LLP Scott F. Llewellyn Nicole K. Serfoss
Creager Mercantile Co., Inc., a wholesale distributor of
groceries and tobacco products, sells Blunt Wraps, a type of
cigar wrapper made of thirty to forty-eight percent tobacco.
Blunt Wraps are designed to be filled with additional tobacco
or marijuana and then smoked. We are asked to decide whether
Blunt Wraps may be taxed as "tobacco products, " as
that term is defined in section 39-28.5-101(5), C.R.S.
(2016). Because Blunt Wraps are a "kind" or
"form" of tobacco, and are "prepared in such
manner as to be suitable . . . for smoking, " we hold
that Blunt Wraps fall within the plain language of the
definition of "tobacco products" under section
39-28.5-101(5) and are taxable accordingly. We therefore
reverse the judgment of the court of appeals.
Facts and Procedural History
The State of Colorado's tobacco products tax has two
components. The first component is a statutory tax enacted in
1986 that levies a tax of "twenty percent of the
manufacturer's list price" on the sale, use,
consumption, handling, or distribution of "all tobacco
products" in Colorado. § 39-28.5-102(1), C.R.S.
(2016). This tax is imposed when a distributor brings or
ships tobacco products into Colorado, or manufactures tobacco
products in Colorado for sale in this state. Id. The
second component is derived from Amendment 35, which voters
adopted in 2004. Colo. Const. art. X, § 21. The statute
implementing this constitutional amendment levies another tax
of twenty percent on tobacco products "in addition to
the tax levied pursuant to section 39-28.5-102." §
39-28.5-102.5, C.R.S. (2016).
Both components of the tax rely on the definition of
"tobacco products" in section 39-28.5-101, which,
with the exception of cigarettes, broadly includes various
kinds and forms of tobacco that can be chewed or smoked
"in a pipe or otherwise":
cigars, cheroots, stogies, periques, granulated, plug cut,
crimp cut, ready rubbed, and other smoking tobacco, snuff,
snuff flour, cavendish, plug and twist tobacco, fine-cut and
other chewing tobaccos, shorts, refuse scraps, clippings,
cuttings and sweepings of tobacco, and other kinds and
forms of tobacco, prepared in such manner as to be suitable
for chewing or for smoking in a pipe or otherwise, or
both for chewing and smoking, but does not include cigarettes
which are taxed separately.
§ 39-28.5-101(5) (emphasis added).
Blunt Wraps did not exist when section 39-28.5-101 was
enacted in 1986. The product evolved from rolling papers used
to make roll-your-own cigars and cigarettes. Traditional
rolling papers are sold in a sheath of small, dry papers that
are folded together in a pop-up packet and can be pulled out
one-by-one. In contrast to traditional rolling papers, Blunt
Wraps are made from pulverized, homogenized tobacco leaves
mixed with vegetable gum, and contain between thirty and
forty-eight percent tobacco.
Blunt Wraps are packaged moist and are individually wrapped
around a plastic straw in a sealed container. Before use, the
straw is removed from the Blunt Wrap, leaving a pre-formed,
small, hollow cigar shell. Like traditional rolling papers,
Blunt Wraps are designed to be filled with tobacco,
marijuana, or other smoking material and smoked. See
generally Redman, How to Roll A Blunt,
on Whut? Thee Album (Columbia Records 1992). When
smoked, the Blunt Wrap is consumed along with the additional
tobacco or other smoking material.
Blunt Wraps are marketed to consumers as "all natural
tobacco wraps" and are patented as a tobacco product;
the patent description summarizes their production and
Wrapping moistened tobacco leaves around a cylindrical form
casing forms the shell. The leaves are allowed to dry, and
the shell is ready for sale to a consumer. After the form
casing is removed, the consumer can fill the shell with a
favorite blend of tobacco.
In one of the embodiments, a longitudinal slit is formed
through a wall of the shell to allow prying open of the shell
body and removal of the form casing. After crushed tobacco
leaves are deposited into the central opening of the shell,
the edges of the slit are moistened and brought together to
seal the slit. A cigar is ready for smoking.
U.S. Patent No. 6, 321, 755 (filed Dec. 7, 1999).
Creager began distributing Blunt Wraps in 2003. The Colorado
Department of Revenue ("the Department") audited
Creager in early 2004 for the 2001-2003 tax period, but
levied no tax assessment against Creager for selling Blunt
In 2006, in response to several taxpayer inquiries, a unit at
the Department construed section 39-28.5-101(5) to include
products that contain any amount of tobacco. The Department
issued a notice called an "FYI" to inform
distributors of tobacco products of this interpretation of
In 2007, the Department audited Creager for the 2004-2006 tax
period and issued an assessment and notice of deficiency,
asserting that Creager had failed to collect tobacco products
tax on the sales of Blunt Wraps during that period. Creager
protested the results of the Department's audit, arguing
that Blunt Wraps do not meet the statutory definition of
Following a hearing, the Department issued a final
determination concluding that Blunt Wraps are "tobacco
products" under the definition in section
39-28.5-101(5). The Department's final determination