Colorado Voters Deciding How to Tax Pot

November 4, 2013

On Tuesday, voters in Colorado will decide whether to approve a 15 percent pot excise tax to pay for school construction, plus an extra sales tax of 10 percent to fund marijuana enforcement, says the Associated Press.

Some pot activists are campaigning against the taxes, arguing that marijuana should be taxed like beer, which has a tax rate of 8 cents a gallon.

While polls suggest the tax is going to pass, it is very much an open question how much the state is going to reap.

  • A projection prepared for voters by state fiscal analysts predicted the taxes would bring in $70 million a year.
  • But an early draft of Colorado's first budget after retail sales begin, the 2014-2015 fiscal year, doesn't include an amount they expect in pot revenue.

Washington state isn't counting on pot revenue, either.

  • Voters in that state set tax rates when they approved legalization last year.
  • Taxes will be 25 percent, levied at least twice and up to three times between when the pot is grown and when it reaches the customer, plus sales tax.

Marijuana's tax potential is an important question for the prospects for pot legalization in other states. If pot proves a tax windfall for Colorado and Washington, other states may be inclined to look favorably on legal weed. But if recreational pot smokers in the two states stay in the black market to avoid taxes, while the price tag for regulating a new industry balloons, marijuana legalization could suddenly look like a bad deal.

Colorado's medical marijuana framework will remain in place, with a much lower taxation rate. Heavy pot users could save a lot of money by paying nominal annual fees to be on the state medical marijuana registry and paying only regular sales taxes on their pot. Colorado also allows growing pot at home without a license, allowing users to avoid taxes entirely.

Surveys suggest that 20 percent of pot smokers consume 80 percent of the pot, so the behavior of the heavy user has significant tax consequences, says Beau Kilmer, co-director of the RAND Drug Policy Research Center.

It's too soon to say what will happen to recreational pot prices after retail sales begin next year. But if current prices hold, Colorado's proposed tax rate would add about $50 to an ounce of medium-quality loose marijuana, roughly the amount that would fit in a sandwich-sized plastic bag.

Source: Kristin Wyatt, "Colorado Voters Deciding How to Tax Pot," Associated Press/ABC News, November 1, 2013.

 

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