Why Oregon taxes marijuana by price

Thinking that Colorado’s de facto weight based tax (and it really is based on weight, not price, as explained at https://newrevenue.org/2016/02/09/colorado-taxes-by-weight/) is the best marijuana tax so far, I don’t completely agree with my friends Jon Caulkins and Beau Kilmer about their interpretation of Oregon’s retreat from a weight based tax. Their article is behind a paywall, but it says:

Weight-based taxes need to be indexed to preserve value in the face of inflation, and they incentivize high-potency forms to minimize the tax per hour of intoxication. This helps to explain why Oregon replaced the $35 per ounce tax on marijuana flowers passed in 2014 with a 20% sales tax.

“Helps to explain” doesn’t go far out on a limb, but I wouldn’t go even that far.

Anthony Johnson, the architect of the Oregon Initiative with the per-ounce tax, kindly agreed to let me quote him: “Oregon moving from a weight-based tax to a tax at the retail level was more about convenience for the industry and the state. Growers and retailers advocated for the switch and state regulators and policymakers were happy to oblige.”

Some background: I got into this when the Oregon Legislature asked me to testify last year on that issue. Here is my written testimony: https://newtax.files.wordpress.com/2015/02/oglesby-testimony-oregon-16-feb-2015.pdf. Here is the audio of my telephone testimony 16 February to the Oregon Joint Legislative Committee on Measure 91:  http://oregon.granicus.com/MediaPlayer.php?clip_id=8165  — 1:20:40 is where I start, and I finish by 1:38:00.  At about 1:36:51, Co-Chair Lininger says, “That was really a delightful phone call.”

Political opposition by growers to the hassle of paying the tax was one factor behind the retreat.

Another factor was the awkwardness of exempting medical marijuana from a production tax. It’s awkward for raw product to be designated irrevocably as medical or recreational, because the market may demand more or less of each category later on, when the consumer sale occurs. And irrevocable designation is not just a guess, it’s a bother.

Friends in Oregon reminded me of some other factors:

Another factor was the simplicity of collecting a price-based tax – as opposed to creating a machine to collect one based on weight. Retail taxes are absolutely easier to deal with than weight. We put this in the RAND report for Vermont, on page 91:

“As if speeding up tax history, the state could adopt revenue bases one by one, using later adopted bases to replace or supplement early ones. Some marijuana bases are easier to implement from a standing start than others. For instance, square-footage taxes and electricity taxes could get an immediate start. Price-based taxes would require little lead time. Weight-based taxes, which require establishment of standards, procedures, and weighing locations, could follow. Potency-based taxation would require more time to implement.” http://www.rand.org/pubs/research_reports/RR864.html

So maybe rules will evolve as time goes on.  I venture no prediction.

Meanwhile, an Oregon source says, paraphrased,

“’Tax per hour of intoxication’ is pretty theoretical stuff, and I kind of don’t think that Oregon legislators were primarily swayed by that.”

“And still another factor I suspect is the local jurisdictions.  They wanted their hands on some more money, and it’s way easier for a local jurisdiction to tack on a local sales tax (they ended up getting a maximum local option of 3%) than it would have been for the local jurisdiction to get involved with the weight game at the grower level.  I suppose you could have had a weight based state tax and a local sales tax, but combining them just seemed to be the easy way to go.”  California localities face this issue both now with medical cannabis, and later, if the big Initiative passes in November. Under either law, California localities can tax without limit.  So can Colorado’s — some tax by price at retail, some tax by weight at the producer level.  Washington State allows no local cannabis taxes.

I had overlooked that local tax point for the Oregon change.





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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