Three killer traps threaten early cannabis taxes: a feeble tax base, inflexibility, and carveouts. Essential enforcement can’t be guaranteed. And a tax that sputters along today could conk out if an interstate race to the bottom or competing federal taxes materialize.
4-week paywall has ended. Full text (7,000 words) of “Marijuana Taxes — Present and Future Traps” from State Tax Notes of January 23 is at marijuana-tax-traps-state-tax-notes-oglesby-1-23-17. Here are intro and conclusion:
This article will examine:
• the facts on the ground for recreational marijuana taxes;
• inherent weaknesses in early taxes;
• three problems voters may overlook when legalizing marijuana;
• the specifics of 12 state legalization initiatives; and
• three potential post-enactment problems.
VI. Summing Up
It’s unclear that marijuana taxes will stand the test of time. Legal commerce itself could fade away with a new administration. If for-profit marijuana commerce endures, some kind of marijuana taxes will too. The tax base march of progress is likely to continue. And the tax burden can go up too. The soundness of state marijuana taxes will depend on the ability of legislatures to dodge special interests and to make midcourse corrections. But state constitutions make some initiative-passed laws inherently inflexible. Like initiatives, legislation faces threats from medical tax breaks and reliance on flimsy price-based taxes.
Post-enactment, any tax scheme faces the threat of inadequate enforcement. Interstate commerce will threaten state producer taxes, and federal tax dominance could vitiate even the soundest state tax. Voters like marijuana revenue for government. But state marijuana tax laws are likely to remain works in progress for a long time.