Paying the (right) price for legalized marijuana
Today in Denver, a legislative committee is expected to take up a bill that would ultimately present voters with the opportunity to establish a sales tax and excise tax on recreational marijuana.
The debate will not be about whether we should tax recreational marijuana. Amendment 64, passed by voters last November to legalize pot, included tax revenue as one of its selling points. Instead, the debate will be over what the correct amount should be.
We think the 30 percent tax rate contemplated in the legislation is not unreasonable, but we won’t be surprised if it is reduced. It’s important to get a reasonable tax package passed, along with other marijuana regulations, before the Legislature adjourns in mid-May.
One group argues we should tax marijuana high enough to deal with all of the enforcement and bureaucratic requirements that go along with legalizing pot, as well as anticipated health problems. But don’t tax it too high, say others, or you will drive users away from legal marijuana and back to black-market dealers.
House Bill 1318, which establishes the tax framework for recreational marijuana, would create a 15 percent special sales tax for retail sales of pot, along with a 15 percent excise tax on transfers between growers and sellers. That would mean a total of a 30 percent tax for consumers, on top of state and local sales taxes. Medical marijuana would be exempt from the excise tax.
When Colorado voters approved Amendment 64 last year, they also approved language that authorized the Legislature to establish an excise tax of up to 15 percent, with the first $40 million of revenue from the tax each year going to aid in school construction. The amendment neither authorized nor prohibited the additional sales tax.
Because of the requirements in Colorado’s TABOR Amendment, state voters will have to approve any marijuana tax adopted by the Legislature.
While a 30 percent combined tax rate may seem high, it is not out of line with the total federal and state taxes that are assessed on alcohol and cigarettes. And it will be lower than the 44 percent combined tax rate that pot users will pay in Washington state, under the ballot amendment approved by that state’s voters last November.
Furthermore, some growers in Washington believe they can grow and sell marijuana at lower prices than black-market dealers, even with the state tax, according to a New York Times article.
But all this is uncharted territory. Even when alcohol prohibition ended, government had experience with alcohol taxation in the years before it was temporarily banned. There is no such prior experience with legal pot. And it may take some time to find the right balance. HB1318 is a good place to start.