Month: February 2014

Professor Doug Berman at Ohio State Law School, who heads up the leading scholarly law blog on marijuana policy, writes:  “I strongly believe the marijuana tax stories and regulations that that emerge in state and federal law and policies in the months and years ahead will be the most important predictor of whether pot prohibition eventually gets fully repealed or lives on and on in the United States.” That’s  here and at http://lawprofessors.typepad.com/marijuana_law/2014/02/everything-is-tax-seems-a-fitting-mantra-for-marijuana-reform-and-policy.html:

Marijuana Taxes: Time Will Tell  Here and at http://www.huffingtonpost.com/pat-oglesby/marijuana-taxes-time-will_b_4858405.html

Thanks to Austin Jenkins for putting me on the air about marijuana revenue:

Pat Oglesby runs a think tank in North Carolina that focuses on marijuana taxes. He cautions those numbers are bound to change.  “You’ve got so many uncertainties. You’ve got what’s going to happen with the medical market? What about bootleggers?” he said.

Audio here or http://kplu.org/post/pot-tax-revenue-estimates-likely-hazy

Transcript: Continue reading “On Public Radio Out West”

At Peter Barnes’s International Tax class at Duke Law School.  Tax it now, I say.  Professor Barnes (on the left) is more restrained.  I left a student on the left out of the frame and left one obscured on the right — sorry.

2013 suit

OK, this is confusing, so I have been tinkering with it (March 5).  The official Washington estimate of marijuana revenue at http://www.erfc.wa.gov/forecast/documents/rev20140219_color.pdf shows some $51 million through FY 2017 and some $190 million through FY 2019, but it omits the 81.7 percent of excise tax collections that do NOT go to the General Fund, and adds in general sales and B&) taxes.

But total marijuana tax collections are expected to be much bigger — $129 in excise collections alone, $28 million in other taxes.  That adds up to the current  total estimate of $157 million given to Austin Jenkins of Public Radio.

That $129 million for excises alone supersedes an old official estimate of $1.6 billion for  fiscal years through 2017.  (The new estimate goes through FY 2019, but that’s not relevant here.)

That $1.6 billon for excise alone was part of the  old  Washington estimate of $1.9 billion in total new taxes on account of marijuana for the fiscal years through 2017,  I never believed those old, high numbers.

Now for some details.  Of that new $157 million total through FY 2017, $28 million comes from sales and Business and Occupation taxes.  The $28 million figure peels off the official written estimate.  The $129 million requires subtracting that $28 million from the official $157 million figure.

Here’s how I figure that $129 million was arrived at.  I take $22.9 million from the official written estimate and adjust it,  getting only as close as $126 million — but that’s in the ballpark.

My guess at total marijuana excises for FY 2015-17	$125,597,005
Add back discredited number for license fees	$483,000
Sales and B&O taxes per estimate	$28,300,000
Total for FY 2015-17	$154,380,005 (actual estimate is $157 million)

That $157 million (or $154 million, as close as I can get) compares to the old legislative estimate of $1.94 billion in goal for the period through the end of FY 2017, http://www.ofm.wa.gov/ballot/2012/I-502_Worksheet.pdf.  Quite a change.  Less than 10 percent remains.

Here are my calculations, with spreadsheet retaining formulas here:  WA revenue Feb 24 2014 PO calculations.

Excises and license fees to General Fund per Feb. 2014 estimate	$22,900,000
Less license fees from old, discredited http://www.ofm.wa.gov/ballot/2012/I-502_Worksheet.pdf — not a reliable number	$483,000
Excises to GF	$22,417,000
Fraction of excises apportioned to non-GF purposes per statute	0.813000
Fraction remaining for GF	0.187000
Calculated excises (inverse of .187 =5.347593583, multiplied by excises remaining for GF) before allocations	$119,877,005.35
Various off the top allocations	$500,000
	$200,000
	$20,000
	$5,000,000
My guess at total marijuana excises for FY 2015-17	$125,597,005
Add back discredited number for license fees	$483,000
Sales and B&O taxes per estimate	$28,300,000
My slightly off Total for FY 2015-17	$154,380,005

Among problems with my calculations are (1) numbers in the new, February estimate were rounded off, and I take them to be precise, (2) I’m using the license fee number ($483,000) from the legislative estimate that got to $1.94 billion, and the estimate is very sensitive to errors in that number.  But I’m in the ballpark.

In Colorado, the revenue estimate for marijuana excise taxes went up.  An official 2013 legislative estimate called for $67 million for the first full fiscal year, July 2014 to June 2015.  As of February 18, math shows that the Governor is officially expecting $107,237,544 from those excises.  An officially reported $117 million number, linked below, includes taxes other than excises, and excludes amounts sent to localities.

Continue reading “New Colorado Marijuana Revenue Estimate”

Old revenue estimates for marijuana taxes have just made way for new, more informed ones.  An official 2012 Washington State legislative revenue estimate called for $1.9 billion in marijuana taxes by the end of Fiscal 2017.  On February 19, the Governor drastically cut that questionable number, with a new, lower estimate calling for around $155 million during that time frame.

That $155 million number does not show up in print yet.  It comes from adding up and rounding off (1) the $28 million estimated to go into the general fund from sales and B&O taxes and (2) $125 million.  That $125 million number (this gets tricky) comes from knowing that the nearly 20 percent of excise revenues estimated for the general fund are $23 million — thanks to Steve Lerch, an old friend from Joint Tax Committee staff in D.C. who now heads up estimating for the State of Washington, who graciously clued me in.  (Multiplying by a little over 5, the inverse of 20 percent, gets to $125 million.)

The basis for those new Washington numbers comes from a thoughtful analysis led by Jon Caulkins, a top drug policy scholar who has gone out of his way to help me over the years, though we have met only electronically.  But even with all this expertise, the numbers are iffy.   For instance, the Washington estimate assumes that retail sales won’t start before mid-2015, and I would bet sales start much earlier.

In Colorado, the estimate for marijuana taxes went up, not down.  An official 2013 legislative estimate called for $67 million a year.  As of February 18, the Governor is officially expecting around $100 million a year — $184 million over the first 18 months.

Washington has more people than Colorado – and higher marijuana taxes.  Colorado’s wholesale tax rate is 15 percent; Washington’s is 25 percent.  Colorado’s retail tax rate is 10 percent; Washington’s is 25 percent.  Washington sometimes adds a third 25 percent tax, on producer sales.

Both states estimate that revenue will increase over time.  But both have percentage-based taxes, which shrink when pre-tax prices fall. Continue reading “Marijuana – How Much Revenue?”

The amount of marijuana tax that Colorado collects for the first month of legalization, to be reported in early March, is unlikely to be a good proxy for a twelfth of a full year’s tax.

For one thing, Colorado’s 15 percent “wholesale” tax will start very slowly in the first few months and then gain steam.  This slow start is due to a “one-time transfer” exception to the wholesale tax:  Product originally owned by a medical marijuana business and then transferred to a recreational business during the startup of legalization will completely avoid the 15-percent wholesale excise tax forever.  Continue reading “Colorado marijuana taxes — Don’t extrapolate”

UPDATE September 22, 2014:  Ms. Habib notes: CBDA is an important standard but wasn’t available commercially. It is now available commercially.

++++

Is THC content is a practical tax base for marijuana concentrates?  I asked Rose Habib.  She was part of the BOTEC team that worked on Washington’s marijuana laws, and is an analytical chemist with Cannabanalysis Laboratories in Montana, http://cannabanalysis.com.

To restate the question, can different labs  measure liquid alcohol extracts and come back with THC results that are very different?

We have a good way to go.  Here’s Ms. Habib’s full answer:

It is true that labs currently could take the same alcohol extract and get different results.  Because of the homogeneity of the sample, we know that this is not because of sample irregularities, we can easily attribute that to lack of analytical accuracy.

In other industries like pharma or supplements or cGMP regulated industries there are validated methods Continue reading “Taxing marijuana potency – Rose Habib”

Treasury’s long awaited guidance on marijuana banking anticipates that banks will know what is in marijuana  depositors’ tax returns.  Continue reading “Treasury and bank depositors’ confidential tax info”

If the government wrote a check to every church’s minister, that would be Establishment of Religion, right?  Then what about tax breaks for every minister?  Code section 107 gives tax breaks for housing to any “minister of the gospel” (expanded in Regs to cover rabbis, imams, etc.).  I think that’s the kind of establishment of religion the Founders forbade in the 1^st Amendment.

A court agrees.   Continue reading “Establishment of Religion via Tax Break”

Deferral and deferment may seem like synonyms, but international tax folks always use the word deferral for the tax break that multinationals get on foreign income — I’ve never heard deferment.   Continue reading “International tax: Deferral and Deferment”

[Original here and at http://www.huffingtonpost.com/pat-oglesby/how-not-to-tax-marijuana_b_4739009.html%5D

With marijuana legalization gaining steam, we might ask not just whether to legalize and tax, but how.  Here are three mistakes that California and other states can still avoid.

Mistake 1.  Collecting late Continue reading “How Not to Tax Marijuana — HuffPo”

Unable to figure out a transfer price for a Constitutionally permitted 15 percent wholesale tax  when vertical integration forbids the existence of a wholesaler, Colorado has substituted a weight based tax.  Wow.

The excise tax is calculated by multiplying the quantity of retail marijuana product by the average market rate at the time, then multiplying by the 15% (excise tax rate). For example: ABC cultivator transfers 3 pounds of flower, 5 pounds of trim and 8 plants to ABC store. At the time of transfer the average market rates are:

$1,876 for Flower Continue reading “Colorado converts percentage tax base to weight!”