Month: December 2013

UPDATED April 20, 2016:  Code section 280E supposedly requires disallowance of all expenses other than cost of goods sold, but “[c]urrently, some IRS agents are accepting 280E allocations that disallow 20% to 25% of the expenses (other than Cost of Goods Sold).”   Continue reading “280E — Not Strictly Enforced”

Any commercial legalization of marijuana will face the issue of vertical integration.  The law can require it (as Colorado does in most cases), ban it (as Washington state does for producers and retailers), or tilt toward it or against it. Continue reading “Marijuana taxes: Vertical integration and transfer pricing”

Trying to figure out why one little federal excise “sin” tax is not based solely on weight, volume, or potency (alcohol content), I’ve been stumped. And I still am.  It’s the tax on large cigars — 52.75% of sales price but not to exceed $402.60 per 1,000.  The key advantage for expensive cigars is not the percentage base, but the 40-cent per unit cap — regardless of weight.  Meanwhile, it turns out that makers of small cigars, taxed, like cigarettes, at $1.01 per pack of 20, have deliberately increased their size to cross over into the “large cigar” category – and pay only the ad valorem tax.  To be sure, the excise tax on firearms in section 4181 is imposed by percentage of price — how could it not be?  (Note that one other federal excise tax, the 12% retail tax on heavy trucks, is collected at retail, unlike the standard sin taxes.  Code section 4051.  Here’s more on the collection point, from A.I.:

Major Retail-Level Federal Excise Taxes

1. Retail tax on heavy vehicles — A 12% excise tax applies to the first retail sale of truck, trailer, and semitrailer chassis and bodies, and highway tractors with a gross vehicle weight of 33,000 pounds or more. The tax includes the total sale price, including trade-ins, and is reported on IRS Form 720 under IRS No. 33.​

2. Indoor tanning services — The 10% federal excise tax on indoor tanning applies directly to the consumer, collected by the salon at the point of sale and remitted by the service provider on Form 720.​

3. Retail sales of firearms and certain hunting gear (under special circumstances) — If a manufacturer sells directly to consumers (e.g., at retail or in non-arm’s-length transactions), the federal excise tax on firearms, ammunition, and bows applies at the retail level rather than wholesale. This is determined under Internal Revenue Code §4216(b) and the Pittman–Robertson Wildlife Restoration Act.​

4. Airline tickets — Although technically collected by airlines rather than retailers, the federal passenger ticket tax functions as a retail-level excise: it is included in the price paid by the traveler and remitted by the airline on Form 720.​)

Why do we have this unique tax base?   Continue reading “Large cigars: A rare federal ad valorem “sin” tax”

Though leading drug policy scholars argue for nimble tax rules in the face of an unknowable future,  “The Control, Regulate and Tax Marijuana Act,”  Continue reading “California Marijuana Initiative Freezes Tax Rates Too Long”