Working on a response to the LAO report (subject of December 18 post on this blog) for a paper that won’t go final before April 10 – a defense of the weight tax in California (people there call it a cultivator tax, which reflects the confusion – it’s actually collected downstream). Would welcome comments and pushback.
- Weight tax isn’t the worst tax; it’s the best – and clearly better than ad valorem (percentage of price) excise taxes on cannabis. Look at federal alcohol and tobacco taxes. And all 50 states have non-ad valorem excises on tobacco; all but government monopoly states have non-ad valorem excises on all three forms of beverage alcohol.
California’s weight tax is not working, but the few problems I’ve heard about (there may be more) can be readily fixed.
a. Flash frozen stuff needs a separate category – fine.Maybe Colorado’s “wet whole plants” category plugs right in. https://www.colorado.gov/pacific/sites/default/files/Excise23.pdf
b. CA’s collection mechanism for the weight tax is Byzantine. Simplification – to tax payment by first distributor, for instance, seems doable.
- Federal marijuana legalization won’t happen until there’s a proven method of collecting taxes that doesn’t put the federal government taxing every retail sale in every state.That’s too far-flung a network to supervise, so the tax will need to be collected upstream of retail.
An upstream ad valorem tax is too tricky to work. Look at Colorado and Nevada, whose nominal ad valorem upstream taxes (15% of producer price) are de facto converted to weight-based taxes. https://newrevenue.org/2017/07/02/nevadas-70-cent-per-gram-tax-on-marijuana-flower/
State taxes will be the model for federal taxes, and federal legalization won’t happen without new taxes (at least if 280E is repealed). Ad valorem (percentage of price) taxes aren’t that model. Switching from weight to ad valorem by California would sow confusion in an already glacial federal legalization process.
- The LAO’s problems with the weight tax are not stated, except:
“[T]he state has not established any mechanism for consistent, direct third‑party verification of the weight of harvested plants.” How hard could that be? As @DaveSilberman tweeted, “Any experienced cannabis consumer can tell by sight whether the seller is overstating weight.” That’s the beauty of a weight tax – it’s verifiable.
So the California tax folks must have higher priorities than this “mechanism.” (The actual problem, if any, is not stated – just lack of a “mechanism” for figuring out how many grams something weighs.) California’s enforcement needs a lot of work done. And third party verification is a strange hook to hand your hat on – its is inferior to state audit verification, which the Dominion of Canada does with its per gram taxes on flower and leaves.
The LAO doesn’t get to any distinction for THC taxes between raw plant material and processed products – and whether that distinction, rather than the number of grams on the scale, isn’t the real tricky part of a weight tax.
- The British Indian Hemp Drugs Commission revealed at least six categories of weight-based taxes in use in 1893. https://newtax.files.wordpress.com/2018/09/ihd-vol-3-pages-title-17-or-so74464868_53_72.pdf, page 8. This is the tried and true method. All these little ad valorem taxes were enacted because they were so easy to draft. Price collapse, bundling, related party deals (and phony prices) – ad valorem taxes are primitive.