I’ve consistently said marijuana taxes can be too high at first. Fitch Ratings warns of that too, but supports its warning with this inaccurate statement: “Colorado, Washington and Oregon each lowered their cannabis taxes following legalization to address black market competition.” https://www.fitchratings.com/site/pr/1029632. But it would be nice to get the facts straight.
Fitch apparently relies on material published April 20, 2016 (4/20 – get it?) by the Tax Foundation, which alleged, “Colorado, Washington, and Oregon have all taken steps to reduce their marijuana tax rates.” That was questionable too, even at the time, but there’s another problem: “lowered” is not the same as “taken steps to lower.”
Let’s start with Colorado. Indeed, it was true at one time to say, as the Tax Foundation did, that, “The state has scheduled a tax reduction for July 2017, after a state-sponsored study substantiated the claims that high tax rates were permitting the continued existence of black and gray market suppliers.”
Indeed, the Legislature passed a bill to decrease a retail tax – added after passage of Amendment 64 – from 10 percent to 8 percent, but increased that rate to 15 percent before it went into effect. https://newtax.files.wordpress.com/2017/07/co-unaffiliated-tax-aug-2017.pdf; https://www.colorado.gov/pacific/tax/marijuana-taxes-file. The big story here is the addition, to the producer tax that came in with legalization, of that retail tax– and its rate increase.
So Colorado has adjusted its taxes only upward – with the weird exception of an extremely short tax holiday to comply with Colorado’s unusual Taxpayer Bill or Rights – TABOR. That lasted only one day. https://newrevenue.org/2015/09/09/colorados-tabor/.
Fitch says Washington lowered cannabis taxes. But that statement mystifies me. The state replaced two levels of 25-percent taxes (three levels only for poorly planned tax structures that mostly did not materialize) with a one-level 37 percent tax. That was not supposed to be a tax cut. As the Tax Foundation put it, “The 37 percent marijuana tax rate was selected as a revenue-neutral level.” https://taxfoundation.org/marijuana-taxes-lessons-colorado-washington/
Oregon, indeed, overshot at one point, and brought its tax rate down. That’s one out of three.
Maybe I’m missing something. I’ve tried to contact the authors of the Fitch study, to no avail.
As for the future, Fitch’s post says, “Fitch Ratings will publish a report titled ‘Local Taxes May Challenge Cannabis Legalization in California’ in the coming weeks. It will be available for download on www.fitchratings.com.” I wonder if they’ll get the story straight by then – or help me figure out what I’m missing.