Administrability of Retail THC Tax

Having worked on a study for the State of Washington of the feasibility of taxing cannabis by THC content, I was nervous about the idea.  The report I helped write had this:

“[R]etailers . . .  had little confidence that the POS [Point of Sale] systems could provide the information that they would need to process sales efficiently. Unless potency readings are reliable and readily available at the point of sale, or unless the state uses a simpler model such as a product-based potency estimate to determine a product’s tax, retailers fear that their staff would have to manually calculate tax liability for each item at the point of sale. This would create impossible bottlenecks for stores, many of which move tens of thousands of dollars of product each day. The system of attributing potency to a product would need to be streamlined and automated so as to avoid bud tenders inadvertently collecting the wrong amount, or worse, gaming the system to create a commercial advantage.” https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3481584

But maybe a retail THC tax is more feasible than we gave it credit for.

I wrote Jim Morgan, CFO of the Washington State Liquor and Cannabis Board (WSLCB) and a tax policy and finance expert, whom I had the good fortune to meet in Olympia while working on the study.

From: Pat Oglesby [mailto:po@newrevenue.org] 
Sent: Tuesday, September 29, 2020 3:07 PM
To: Morgan, James E (Jim) (LCB) 
Subject: POS

Dear Jim,

After all this time, do you suppose that POS technology has advanced to the point where a stated THC tax would be about as administrable as an ad valorem tax?

With highest regards,

Pat

He wrote back, with a useful take:

Tue, Sep 29, 2020 at 6:54 PM

Pat,

I am quite sure that POS vendors are skilled enough to build this functionality into their systems.  I believe that THC content is captured in many cases as an attribute of the inventory items in the POS system.  There is not much business value to the cannabis businesses beyond that, though.  Specific functionality that could use this information for tax purposes would only be developed in response to specific regulatory requirements.

Regards,

Jim

++++

I’ve been skeptical of retail ad valorem taxes, so I’m starting to think a retail THC tax is better on policy grounds (for reasons listed in Chapter Five of the RAND Vermont report, https://www.rand.org/pubs/research_reports/RR864.html) — and maybe feasible after all, if a state wants one. It would take some work, but so does every change.

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