California Board of Equalization elected Member Jerome Horton came up with an October surprise to illustrate a tax weakness in Prop 64, the California marijuana legalization initiative. That weakness didn’t prevent its passage, but it lingers. And a new 79-page clean-up bill does not fix it.
Member Horton alleged that a tiny, technical, last-minute drafting change in the California 2016 marijuana initiative could cost the state $50 million, starting in November. Indeed, the Board of Equalization has adopted his view and officially confirmed that the current sales tax on medical marijuana just disappears – for a while.
I don’t know how anyone would have standing to sue to reverse that ruling. So, apparently, unless the Legislature acts, the total tax on medical cannabis, over time, will be:
— 7.5%, (through the November 8 Election) then
— 0% (from certification of ballot results through 12-31-17), then
— 15% plus weight tax (starting 1-1-18).
For details, see this old post: https://newrevenue.org/2016/11/12/5032/.
The problem is in the effective date of Proposition 64’s repeal of the 7.5 percent standard, general state sales tax. The next-to-last draft of Proposition 64 repealed it effective 1-1-18:
“(g) This section [34011] shall become effective on January 1, 2018.
“(h) The [7.5 percent] sales and use tax . . . shall not apply to retail sales of medical cannabis when a qualified patient . . .provides” a medical card.
[Stricken-through because not enacted.]
Since “(h)” would have been part of section 34011, the repeal of the 7.5 percent tax would have occurred at the very moment the new taxes kicked in – 1-1-18. (The new 15 percent tax would have been in 34011(a), effective 1-1-18, thanks to (g)’s catchall effective date.)
But no.
The actual language of Proposition 64 contains a rewritten section 34011, with the effective date not in a subsection of its own, where it could work as a catchall, but in the beginning of rewritten subsection (a):
“34011. (a) Effective January 1, 2018, a marijuana excise tax shall be imposed upon purchasers of marijuana or marijuana products sold in this state at the rate of fifteen percent (15%) of the gross receipts of any retail sale . . .”
The repeal of the standard 7.5 percent sales tax on medical marijuana is left orphaned, with no specific effective date:
“(g) The sales and use tax imposed by Part 1 of this division shall not apply to retail sales of medical cannabis . . . “
So the effective date reverts to the ordinary default, when nothing is specified: Date of enactment. That means November 9, 2016.
The effective date of the repeal of the standard 7.5 percent sales tax on medical marijuana is still left orphaned. The state is losing money every day. Why? A friend tells me that since you need a patient card to get the exemption and few cards have been issued, some think a change isn’t necessary. But we are bewildered by the notion that that merchants check for cards in a system where tax compliance is so poor already. The likelihood is they just aren’t collecting tax. Maybe we’ll see data.
You might think that since few cards have been issued, a fix would be non-disruptive. Again, why not fix it?
The Center for New Revenue 