2020 Initiative Marijuana Tax Ranking — Arizona Comes in Last

Who wins the marijuana tax booby prize this year?

In 2012, State Tax Notes published a ranking of marijuana tax proposals, with Washington and Colorado, which were enacted, ranked 1 and 2, ahead of Oregon, which lost – the booby prize winner of the proposals that made it to the ballot (but fourth out of six total). http://www.taxhistory.org/www/features.nsf/Articles/0E07F737211351A485257AA900532EEA?OpenDocument

About Oregon’s proposal, I wrote, “The only hope for Measure 80 is that Oregon law allows the legislature to fix it.”  Measure 80 failed, but Oregon came back with a better plan in 2014, which passed.

About Washington’s I-502, I wrote, “It’s not just this year’s best. It’s the strongest marijuana revenue plan American voters have ever seen.”

No such luck this year. 

This year, four proposals are on the table:  Arizona, Montana, New Jersey, and South Dakota.

All impose only primitive ad valorem (percentage of price) taxes.  All will see tax per unit of THC decline, as prices decline over time. (Revenue will go up so long as sales increase in dollar terms, but price taxes leave money on the table.) New Jersey’s seems weakest on the surface, with the tax at only the standard state sales tax rate, while the others vary between 15 and 20 percent.  But New Jersey contemplates new taxes, to be added by the Legislature, so it’s hard to rank low.

Little variations in rates aren’t much to hang your hat on.  This year’s weakest structure is in Arizona, which ties the hands of future Legislatures at rates below Washington’s black market-beating 43.5 percent (37 percent excise plus 6.5 percent standard sales tax)  —  plus local taxes.

Here’s some of the Arizona proposal:

RETAIL CLASSIFICATION AND USE TAX.

B. EXCEPT AS PROVIDED IN SUBSECTION A OF THIS SECTION AND SECTION 42-5452 , THIS STATE AND LOCALITIES MAY NOT LEVY OR COLLECT ADDITIONAL TAXES OF ANY KIND ON THE SALE OF MARIJUANA OR MARIJUANA PRODUCTS.

Not only that, the proposal caps future taxes in light of possible federal legalization:

IF THE UNITED STATES LEVIES AND COLLECTS AN EXCISE TAX ON MARIJUANA AND MARIJUANA PRODUCTS, THE AGGREGATE OF FEDERAL AND STATE EXCISE TAXES SHALL NOT EXCEED A RATE OF THIRTY PERCENT OF THE PRICE OF THE MARIJUANA OR MARIJUANA PRODUCT SOLD, AND THE TAX LEVIED AND IMPOSED PURSUANT TO SUBSECTION A OF THIS SECTION SHALL BE LOWERED ACCORDINGLY AND AUTOMATICALLY ON THE EFFECTIVE DATE OF THE FEDERAL EXCISE TAX. 

Looks like industry prevailed in Arizona.  It’s not clear how the Arizona tax cap would work if the federal marijuana tax is based on weight or THC.  

The other three states don’t have tax structures to brag about, but they leave Arizona in the desert dust. Maybe Arizona is desperate enough for legalization that this flimsy tax structure will bind it for years.

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