The Center for New Revenue is in the early stages of thinking about a conference on marijuana revenue that would assemble folks from the entire spectrum of views on legalization. Here is a draft list of issues:
Monopoly vs. Taxation
Whatever the advantages of the monopoly model, most states are choosing tax and regulate instead. But Oregon’s ill-conceived Continue reading Conference on marijuana revenue: List of issues
Three Democrats in Congress are asking for answers to easy questions about a carbon tax (like what should the rate be and what should we do with the money). But they aren’t facing up to this problem: If I pay tax because my manufacturing plant uses carbon to make stuff and my foreign competitor pays no tax, how does America level the playing field?
At least they don’t overlook indexing – they go beyond it (Bravo!) with the second of their three questions:
“How much should the price per ton increase on an annual basis? Continue reading Carbon tax: Asking the easy questions
Some marijuana businesses face a tax trap in Tax Code section 280E. Continue reading Some Secrets of 280E
First, here is the text of 26 U.S.C. § 280E, Expenditures in connection with the illegal sale of drugs:
No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.
(Text is from http://codes.lp.findlaw.com/uscode/26/A/1/B/IX/280E. Added by Pub. L. 97-248, title III, Sec. 351(a), Sept. 3, 1982, 96 Stat. 640. Public Law reference is from http://codes.lp.findlaw.com/uscode/26/A/1/B/IX/280E/notes.)
Second, here is legislative history, from the Senate Finance Committee Report, S. Rep. 97-494, downloadable from the huge file at http://www.finance.senate.gov/library/reports/committee/index.cfm?PageNum_rs=16 (volume 1), page 309 [oops! bad link as of 8 February 2018; try this: https://www.finance.senate.gov/imo/media/doc/srpt97-494.pdf].
That language is picked up with no meaningful change in the Joint Committee on Taxation’s 1982 Blue Book General Explanation of TEFRA: 1982 blue book.
UPDATE: 280E has its critics, but there are two sides to the story. Parents and others worry about advertising and marketing of cannabis, and 280E discourages marketing expenses, by making them nondeductible. More here (link to http://www.brookings.edu/blogs/fixgov/posts/2015/12/18-marijuana-adverstisement-tax-280e-oglesby.)
I interpret the so-called constitutional challenge as a red herring, intended to prevent overtaxation when vertical integration is not present – the cascading problem. https://newrevenue.org/2013/03/13/the-secrets-of-280e/#more-1735. Taxing gross receipts without a deduction for cost of goods sold wouldn’t be an income tax, which the Constitution explicit authorizes, but it doesn’t need to be. A national sales tax would be constitutional.
When faced with two models for legalization, state monopoly and taxed private sales, 58 percent of voters here in North Carolina (where the only retail seller of liquor is the state ABC monopoly) chose monopoly, 19 percent chose private sales, and 23 percent were undecided. The detailed results, from Public Policy Polling, are at NC Marijuana Polling March 2013.
The cross-tabs are interesting, too. In particular, monopoly prevailed overwhelmingly among all age groups other than the 18-29 group, where 36 percent chose monopoly, 36 percent chose private sales, and 28 percent were undecided. Monopoly doesn’t look like the wave of the future.
I’ve written that federal and state revenue from taxing marijuana could be as much as $25 billion a year. http://www.huffingtonpost.com/pat-oglesby/a-way-marijuana-dilemma_b_2490720.html. But a revenue estimate for a new marijuana tax would presumably involve revenue loss from repeal of unpopular section 280E, which disallows deductions for all expenses other than cost of goods sold. Repeal of section 280E could be costly.
Premise: A fragmented industry is harder to supervise and regulate.
Here’s what may be a counterproductive incentive of 280E. Say Mom and Pop operate a marijuana business: Continue reading Marijuana Tax: An Unintended Consequence of 280E – Fragmenting the Industry?