CO tax on plants and seeds?

A fine point I’m trying to think through: Immature plants are specifically subject to Colorado’s producer excise tax – currently at a rate of $1.20 per plant. Colorado lawyer Rachel K. Gillette, who won the Allgreens case against the IRS, confirmed for me that seeds are not subject to that tax.  I’m thinking they should be treated the same.  So far.

(A digression: When sold at retail in a recreational store to consumers, seeds, like plants and any cannabis or derivatives, are subject to the 10 percent “special state sales tax,” which non-Coloradans might call an ad valorem retail tax, and to any local ad valorem retail taxes on cannabis. This post is not about the retail tax, but about the producer tax, nominally 15 percent, but converted to dollar amounts to make the system work.)

I don’t get it. Here’s my uninformed take. To start with, in the vertically integrated case, immature plants would not be subject to the producer excise tax under current law, I think.

That is, Colorado often deems a sale of cannabis from the production function of a single entity to its retail function – that’s where the weight-based taxes, now 61 cents a gram for bud and 10 cents a gram for trim, kick in. Colorado imposes a tax without an actual transfer – when the transfer from the right hand to the left is deemed to be a taxable event. But I would think the $1.20 per plant tax does not apply in the vertically integrated case.

That is, Colorado is not going to deem a sale of plants from the production function of a single entity to its retail function. I think. Because it will later deem a sale of bud or trim that arose from those plants.

It sounds like immature plants are subject to the producer excise tax whether or not they are sold to a third party not at retail, that is, whether they are sold to a retailer or to another producer, without regard to whether the buyer is a consumer who will plant them, retailer who sells them as plants, or another producer who grows them to maturity.

That’s where I get stuck. I would think that transfers of plants that are not then and there sold at retail should be treated like transfers of seeds. That is, both should be taxed, or neither. I would tend to think neither. When a producer sells plants or seeds to a consumer or to a retailer, that’s the only chance to impose a producer level tax on them. But a sale of plants or seeds to a producer might, as a matter of policy, be tax-free, on the theory that the product of those plants or seed will be taxed at the producer level eventually. (Or the plants or seeds would be taxed with a producer tax when sold to a consumer or to a retailer.) So the tax on transfers of seeds to a producer seems overbroad.

What am I missing?

 

 

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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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