The danger of retail-only taxes  

In Denver, total retail taxes on marijuana of 20.05 percent get beaten when a retail employee sells out the side door. The moral of this story, to me, is collect some tax early – like tobacco and alcohol taxes, collected from manufacturers federally and wholesalers by states.  At some point, a retail tax level is low enough that the danger of getting caught takes away much of the incentive to beat it. 

Most sales taxes, which don’t often get much above 10 percent, seem to fall in the administrable range.  But tha 20.05 percent rate on marijuana in Denver (10 percent state excise plus 3.5 percent Denver excise plus 2.9 percent state sales tax plus 3.65 percent Denver sales tax) was too tempting to cheat on.  (I’m all for phasing tax rates in over time, and starting with very low rates.  But I also think retail sales taxes can bear only so much.  Rental cars and hotel rooms can bear higher rates, because they can’t be pilfered and sold.  UPDATE:  Uber and Airbnb show that those taxes can be evaded or avoided.)

Now Colorado has a producer-level tax, too, 66 cents per gram on bud, which prevents this cheating from beating all taxes.  But that producer-levle tax aims to take only 15 percent of producer price, which is a much lower base than the retail price, thanks to markups through the supply chain. So this scheme to beat the retail tax beats the bulk of the total tax.  If the perpetrator doesn’t get caught.

Washington State’s recent move to a retail-only tax, at 37 percent I think it is, could bring some undesirable incentives for this kind of cheating.

Excerpts from the story,


DENVER, Colo. – It’s being called a black eye for the entire marijuana industry: the arrest of a marijuana retail store employee accused of trying to sell large quantities pot on the black market to an undercover cop.


Last week, police reports state that a Denver officer found a Craigslist post for pot and agreed to pay $10,000 for 4 1/4 pounds.


Eventually, the affidavit states, the police met two men at Buddy Boy, a marijuana retail store at 5050 York Street, and an employee arrived carrying a backpack that appeared to be full.


That employee, Joseph Jaszcyk, 36, and two other men were arrested and the Marijuana Enforcement Division is still investigating the business.


“Employers are ultimately held accountable for these things because they are given the privilege to have the business that they do in a new market economy that’s emerging from the black market,” said Bolivar, who said the arrest highlights concerns about diversion of marijuana from the legal market.


Bolivar said that operators must have policies and procedures in place to prevent this type of diversion, because if they don’t police themselves, the feds may step in.


“It is up to the employer and the industry to self-correct this and make sure  there are measures taken that this does not happen,” she said.


Elliott Klug, the CEO of the marijuana retailer and grower Pink House Blooms, said he limits employee purchases to two ounces per day and tracks employee buys.


“We run reports on employee sales to make sure there is nothing illegal going on, ” said Klug.


“It seems like the Department of Revenue and policing agencies have been slow in cracking down on it,” he said.


This story found thanks to



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