Taxing the buzz

November 25, 2013

Colorado voters approved recreational marijuana sales last November. The infrastructure is now being prepared to begin sales on January 1, 2014. Part of the plan approved by voters is a state tax of 25 percent. Reuters reports:

Under the marijuana tax proposal, a combined 15 percent excise and 10 percent sales tax would be imposed on recreational pot sales, with the first $40 million raised to fund school construction projects.

In Denver, a local ballot measure that would tack an additional 3.5 percent city sales tax on pot shops also appeared headed for passage, by a margin of 69 to 31 percent with roughly a third of votes counted.

Colorado currently collects about $5 million a year from a 5 percent sales tax on medical marijuana.  The state will collect an estimated additional $33 million in taxes from recreational marijuana sales. USA Today reported on anticipated tax revenues in Washington State, which legalized recreational use in November:

For consumers, the effective tax rate is 44 percent, according to the Washington Liquor Control Board. The sticker price includes a 25 percent tax on producers and a 25 percent tax on processors plus 25 percent added to the price of the product. Buyers also pay an additional 6.5 percent state sales tax.

The revenue could bring in as much as $1.9 billion in the first five years to go toward a variety of services, including social and health programs, a marijuana use hotline and the Alcohol and Drug Abuse Institute at the University of Washington. The state’s Liquor Control Board will begin issuing permits for marijuana retail locations starting Nov. 18. Under the law, the state can have a maximum of 334 retail locations.

It remains unclear if the U.S. Department of Justice, in enforcing federal law that makes marijuana illegal, will honor its August promise to acknowledge the state laws. AP reported last week:

Federal agents raided an unknown number of marijuana dispensaries and growing sites in Colorado Thursday, confiscating piles of marijuana plants and cartons of cannabis-infused drinks just weeks before the state allows recreational marijuana retailers to open their doors.

The raids, conducted on a snowy morning, were the first in Colorado since the U.S. Department of Justice said in August that it wouldn’t interfere with state marijuana laws as long as the states keep the drug away from children, the black market and federal property.

If the U.S. Justice Department stays out of the way, states may continue to legalize and tax marijuana. The Vermont State Joint Fiscal Office did a 2012 survey of the 10 states that tax medical marijuana use:

Tax rates on medical marijuana are much lower than Colorado’s new 25 percent recreational rate and Washington’s effective 44 percent rate. Over time, it seems that state and local governments could find a solid new revenue source from taxing recreational marijuana use. Local governments may also save on costs from prosecuting marijuana possession and dealing, as transactions are moved to retail outlets.

Colorado and Washington are on a very interesting path. Stay tuned.

Further: Marijuana Policy Project

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