Tax Foundation overlooks Colorado’s de facto per-gram marijuana tax

The Tax Foundation says marijuana taxes not based on price are “untenable.”  That’s wrong.  Colorado has been merrily collecting millions on a de facto weight-based tax from Day 1 of legal marijuana sales.

Here’s the full quote: “Because marijuana can be purchased as a cigarette, an edible, a liquid, or a vapor, all with a wide variety of concentrations, a specific excise tax is untenable. Each state thus far has framed its tax as a certain percentage of the retail or wholesale sales price.”

Well, not Alaska – though collections there by weight at $50 an ounce, $1.76 per gram, have yet to start.  [UPDATE, 1 December 2016:  Collections have started.  http://highfinancereport.com/alaska-receives-first-tax-payments-from-marijuana-businesses/.  And the rate is still $50 per ounce, http://www.tax.alaska.gov/programs/programs/index.aspx?60000.  That’s despite a Tax Foundation indication that that tax “May change before implementation in late 2016.”  http://taxfoundation.org/article/marijuana-legalization-and-taxes-lessons-other-states-colorado-and-washington.]

But the proof that a “specific” excise (here, one based on weight) is not untenable turns up in Colorado. OK, Colorado “frames” its producer tax as 15 percent of sales, but actually collects tax on every gram by weight. And it has done so from the very get-go of legalization, with collections starting in early 2013.

Before product is incorporated into “a cigarette, an edible, a liquid, or a vapor,” it’s weighed and taxed.

This weight-based tax is in addition to Colorado’s retail price-based tax, which is 10 percent of price.  That 10 percent is in addition to the standard state sales tax of 2.9 percent.  Local taxes may apply, too.

Back to the weight tax:  Picking up an earlier post, https://newrevenue.org/2016/07/18/4856/:

Colorado’s nominal tax rate of 15 percent now yields DE FACTO a historically low tax of 60 cents a gram on flowers or bud, and a historically high rate of 17 cents a gram for trim or leaves.

From the official Colorado web site, https://www.colorado.gov/pacific/sites/default/files/AverageMarketRateFactSheet.pdf, we see the Average Market Rates (AMR) that the 15-percent tax applies to:

“Beginning July 1, 2016 the Department will adjust the AMR to the following:

AMR as of January 1, 2015 AMR as of July 1, 2015 AMR as of January 1, 2016 AMR that will be effective as of July 1, 2016
Flower Rate ($/lb) $2007 $1868 $1948 $1816
Trim Rate ($/lb) $364 $370 $464 $505
Immature Plant Rate ($/EA) $9 $8 $9 $10
Wet Whole Plant Rate ($/lb) N/A N/A N/A $209
Seed Rate ($/seed) N/A N/A N/A $2

That’s a big price boost for trim vis-à-vis smokeable bud, so the market seems to value concentrates, which typically use trim, more these days. Or maybe the price-measuring procedures are changing.  Note that price may reflect many factors other than potency.  In particular, there is an incentive to put bud into the trim pile, as explained here:  https://newrevenue.org/2014/09/22/rose-habib-on-the-bud-trim-line/.

Colorado periodically calculates AMRs based on actual market conditions, then notionally applies a 15-percent ad valorem tax to those AMRs.

Note the new category for wet whole plants, explained at https://newrevenue.org/2015/10/12/beyond-bud-trim/.  Yes, categories of Colorado’s weight-based tax are proliferating.  But that doesn’t make it “untenable.”

 

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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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