Colorado Marijuana Revenue – The Missing $800,000 in January

Colorado’s January recreational marijuana tax collections came in at $2 million – but those numbers may be lighter than we can expect in the medium run (until prices start to drop) for a number of reasons, including limited supply, relatively few open stores, and more.

One factor that is easy to quantify is a temporary hole in Colorado’s wholesale tax on account of a technicality – a “one-time transfer” tax exemption that might add some $800,000 per month to the coffers in the long run.  Here’s how:

Colorado collected on recreational marijuana $416,690 in 2.9 percent sales taxes,  $1,401,568 in retail (10 percent) taxes for January (state and local share combined) and $195,318 in wholesale taxes.  Those add up to the $2 million figure often reported.

But that wholesale number was reduced by the hole in the tax.

Official estimates (Page 13, Table 8) say wholesale collections (state and local shares) will normally be just under 70 percent ($27,525,000/$39,452,013) of retail collections.  (There are different ways of calculating that percentage, and all depends on markup assumptions, but that old percentage is the lowest and therefore most cautious official percentage I can find.)

Now if you take that percentage and multiply it by the $1,401,568 in retail collections, you get $977,850 – that’s an extra $782,532.  Call it $800,000 extra per month that Colorado can expect in the long run, once the hole in the wholesale tax expires.

CAVEATS:  Assuming elastic demand, which is reasonable, passing that wholesale tax through to consumers will reduce grams purchased, which tends to decrease retail taxes — but the passed along taxes will increase the retail price, which tends to increase the retail tax base, and thus retail taxes.

But maybe the industry won’t pass the tax though, but will just absorb it.

UPDATE:  Follow-up (tax humor?  Is there such a thing?) here.

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Author: patoglesby

From 1982 to 1990, I worked in tax policy for Committees of the United States Congress. In recent years, I was Adjunct Lecturer at UNC-Chapel Hill's Business School and then Adjunct Professor at its Law School.

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