Month: July 2013

“How much revenue could the cannabis tax generate, under different scenarios?”  —  BOTEC Analysis Corp. I-502 Project #430-8b June 28, 2013 Final

Despite the June date, this document has not been widely distributed.  It is stored permanently here:  8b_Tax_revenue_under_different_scenarios- Final;   Continue reading “Washington Marijuana Revenue: BOTEC analysis goes public”

Yes, if states don’t stop the black market, it will flourish and keep tax receipts down.   Here’s another story on the same issue.

A friend points out the more general problem:  “The problem is akin to arguing that cash only businesses will drive out taxpaying businesses. They are a problem at the margins. ”  And with restaurants, for instance, even those that pay tax may not pay all the tax they owe.

But tracking down bootleggers should be worth the effort.  Enough enforcement will take away their economies of scale — which legal operations can obtain, if the federal government, too, goes after the illegal sector first.

The marijuana states don’t yet have analogs to the statutes barring possession of untaxed alcohol, like Missouri’s.  But medical marijuana complicates the picture, because it is (typically) untaxed, but lawfully possessed.

 

 

As a tax man, I tend to react to proposals to prohibit something or other by saying . . . Slow Down.  Mentholated cigarettes are reportedly worse than the others, so the FDA is thinking about banning them.

Instead of the all or nothing approach that the FDA is authorized to take, how about the measured approach of taxation?  Make mentholated cigarettes cost a little more – just not enough to make bootlegging a big problem.  But a tax change would require Congress to act, and Jimmy Carter says (albeit in a different context) that the United States has “no functioning democracy.”  Anyway, people hate taxes these days.  So we’re stuck with all or nothing.  The only middle ground the FDA can stake out is to warn people that menthol is bad.  Taxes would be more effective at tipping the scales a little bit.

Our local paper’s political columnist Rob Christensen writes this:  “Trickle-down economics.  Yes, the same warmed-over philosophy that the elder George Bush once called ‘voodoo economics’ and Sen. Bob Dole called ‘a riverboat gamble.’”

But Howard Baker, not Bob Dole, called it a riverboat gamble.  Sources are here and here.  Continue reading “Riverboat Gamble: Correcting the News and Observer”

If a jurisdiction wants to collect tax, it’s a good idea to tax something that is not easy to move.  Boulder, Colorado, is taking what seems to me a nonproductive path for revenue with a 5 percent excise tax on producers.

I’m thinking that a small local tax on purchasers, a retail sales tax, might not send purchasers out of the jurisdiction.  Each purchaser would make an independent decision about the burdens in time and money and the benefits of buying elsewhere.  Meanwhile, a small local excise tax on producers Continue reading “Designing Local Marijuana Taxes”

A long and useful discussion on enforcement of marijuana taxes led me to post here some information from the most authoritative source on immediate post-Prohibition enforcement I have been able to find, Tun Yuan Hu, The Liquor Tax in the United States, 1791-1947: A History of the Internal Revenue Taxes Imposed on Distilled Spirits by the Federal Government (New York: Columbia University, Graduate School of Business 1950).  I’d be glad to learn of other sources.

In 1934, the Director of the Federal Alcohol Control Administration, Joseph H. Choate, Jr., said that “bootleggers are now turning out from their stills alone, not counting smuggling and alcohol divertings, a quantity of spirits which cannot be much less, and may be more than we drank before prohibition — that the government is losing more taxes than it gets, Continue reading “Policing the Illicit Cannabis Market After Legalization”

The NY Times has been covering the North Carolina Legislature, especially tax activity.  Back in December, I wrote that Republicans would seriously propose imposing taxes on all services (even those of doctors and . . . lawyers) and predicted it would be a nonstarter.  Well, the idea went forward, and its main proponent, Bob Rucho, resigned as Chair of the N.C. Senate Finance Committee when it went up in flames.

Having worked on the Tax Reform Act of 1986 for Congress on the Joint Tax staff, I admire base-broadening, Continue reading “North Carolina tax reform in the news”

An article behind the pay wall of Tax Notes this month explains how a little noticed technical provision in 1997, Code section 1297(d), allowed U.S. multinationals to keep over a Trillion Dollars (say $1,700,000,000,000) overseas untaxed.  It’s “Can a Piece of Paper Earn Billions?” by Charles I. Kingson.  The answer is yes.

There are several ways to stop these shenanigans, but Kingson (whose Columbia Law Review article, “The Coherence of International Taxation,” was handed to me on my first day on the job at Joint Tax in 1982)  points out that one simple way would be to repeal the 1997 change and thus reapply the Passive Foreign Investment Company rules to U.S. shareholders of Controlled Foreign Corporations.  Reinstating those rules would create a  fix that would apply only to foreign subsidiaries that are mainly passive.   Then those U.S. shareholders would have to pay an interest charge to make up for the deferral of tax.  Close enough.

$5 per package of rolling papers.  That’s the idea in a Maine bill.

With papers selling for $2 or $3 now, the responses are easy to predict:

— Smokers will use pipes.

— Consumers will buy papers in bulk out of state and share them with friends.

— Suppliers will sell enormous “packages” to dilute the burden of the tax.

Here is the entire bill:

SECTION 1. Chapter 64H of the General Laws, as appearing in the 2006 Official Edition, is hereby amended by inserting the following section.

Section 2B. In addition to the foregoing tax there is hereby established an additional tax of $5 on the sale of tobacco rolling papers per package.

+++++

That paper tax (thanks to Allen St. Pierre for telling me about it) is still a better idea than this one.  And at some low level, a paper tax might make sense as part of a network of taxes.  Maybe.  But not at $5 a pack.  And not without taxing pipes.  The tax rate would have to be low enough so that buying papers in New Hampshire is not worth the trouble.  Such a low rate would probably mean the tax is not worth the effort.

Go to new version with more examples published October 2013 here.

Examples of excise taxes based on percentage of price are hard to find.  Only five come to mind quickly:

1. The Confederate Civil War taxes, listed below.  The Union taxed liquor by potency – cents per proof gallon.[1]  I don’t say that the Union’s choice of tax base explains the victory, but I do suggest that the Confederacy’s choice of tax base illustrates how primitive that “nation” was;

2. Rental car and hotel room taxes – imposed on services, not goods (some folks might not consider that an excise, but it’s a higher than normal rate);

3. The 2.3 percent tax on medical devices in the Affordable Care Act — a tax that is barely hanging on in the face of repeal efforts.  That tax acted to take back benefits the ACA gave that folks thought were too generous — like applying the brake because you know you are pushing too hard on the accelerator but don’t know how to calibrate that pushing.

4.  Taxes on prostitution, like the 19-percent excise tax in Holland:  http://www.huffingtonpost.com/2011/01/12/dutch-prostitutes-taxes_n_807843.html

5.  Today’s marijuana taxes in Washington, Colorado, and California localities.

Maybe that’s because percentage-based excise taxes on goods are not a great idea.  I’m studying that issue.

Here’s a list of items the Confederates tried to tax at 25 percent:

Alabaster and spar ornaments; anchovies, sardines and all other fish preserved in oil.

Brandy and other spirits distilled from grain or other materials, not otherwise provided for; billiard and bagatelle tables, and all other tables or boards on which games are played.

Composition tops for tables, or other articles of furniture; confectionary, comfits, sweetmeats, or fruits preserved in sugar, molasses, brandy or other liquors; cordials, absynthe, arrack, curacoa, kirschenwesser, liquers, maraschino, ratafia, and other spirituous beverages of a similar character.

Glass, cut.

Manufacturers of cedar-wood, granadilla, ebony, mahogany, rosewood and satin-wood.

Scagliola tops, for tables or other articles of furniture; segars, snuff, paper segars, and all other manufactures of tobacco.

Wines–Burgundy, champagne, clarets, madeira, port, sherry, and all other wines or imitations of wines.

http://docsouth.unc.edu/imls/19conf/19conf.html (search for brandy).