Author: Pat Oglesby

While thinking about loosening 280E to allow tax deductions for everything but advertising, you need to define advertising.  This is in connection with an article on 280E as applied in California, here or http://marijuanalegalization.about.com/od/RelatedIssues/fl/Down-the-Rabbit-Hole-of-Cannabis-Taxation-and-Advertising.htm, where this post appears as a hot link.

Defining advertising, for tax purposes, has been done.  There have been lots of proposals to disallow deductions for advertising by requiring amortization of amounts paid to advertise. A recent one came from Republican Ways and Means Chair Dave Camp, and another came from Democratic Senate Finance Chair Max Baucus.  To make that reform happen, you need to define advertising.  (This is a Tax Reform staple.

Continue reading “What is Advertising? – Ways & Means and Rachel Barry  “

This is a technical explanation of California law:  Corporations can deduct, on their California state income tax returns, their expenses for advertising and marketing marijuana.  But individual businesses cannot.  Pass-throughs to individuals, like S corporations and LLCs, don’t provide these deductions to individuals.

Since 1982, Federal Tax Code section 280E has said sellers of federally illegal drugs, like cannabis, can deduct only “cost of goods sold” – the cost of producing or buying the product.  California follows — “conforms” to — that federal law for individuals, but not for corporations.  Continue reading “Technicalities of California marijuana advertising discrepancy  “

Picking Winners: Deciding Who Gets to Grow Marijuana Commercially, https://newrevenue.org/2015/10/20/picking-winners-to-grow-marijuana/, pasted at the very bottom of this post, describes in detail six ways to pick winners, who get the privilege to grow:

1. Self-selection (Responsible Ohio ballot ploy)
2. Voucher privatization – Share the wealth
3. Grandfathering existing growers
4. Lottery
5. Steep fees
6. On the merits.

Professor Sam Kamin of the University of Denver Law School points out that Colorado has a seventh way Continue reading “A 7th way of picking growers”

In Denver, total retail taxes on marijuana of 20.05 percent get beaten when a retail employee sells out the side door. The moral of this story, to me, is collect some tax early – like tobacco and alcohol taxes, collected from manufacturers federally and wholesalers by states.  At some point, a retail tax level is low enough that the danger of getting caught takes away much of the incentive to beat it.  Continue reading “The danger of retail-only taxes  “

A Forbes article points to a bill, sponsored by Colorado Congressman Polis, that would tax marijuana at 50 percent of price. But that’s a 2013 bill, from the last Congress, so it’s officially dead.  We’ve learned a lot since 2013 about how much the market can bear at first.

UPDATE:  The Forbes website just added a reference to this year’s bill.  This year Congressman Polis is teaming up with Oregon Congressman Blumenauer to propose a lower rate, phased in, starting at 10 percent and ending at 25 percent in year five.  Details here. Continue reading “Forbes reports on 280E”

Here’s how Colorado implements its marijuana tax based on weight.  Many, many growers have to pay that tax, so it needs to be simple — and to be verifiable.

I have been told the scales cost a couple of hundred dollars, so they are a step up from cheap food scales like these:  http://thesweethome.com/reviews/best-kitchen-scale/ Continue reading “How scales in Colorado make its weight base work — Updated 27 October 2015”

The Institute on Taxation and Economic Policy just posted this report on state marijuana taxes: http://www.itep.org/pdf/marijuanaissuesreport.pdf. It’s useful, I say.  Richard Phillips is the author.

Here is a list of some of ITEP’s funders: http://www.itep.org/about/funding.php

 

The Louisiana Senate has passed a sunsetted medical marijuana bill providing a single license for production of the crop.  The fee will be set  later.

“The Department of Agriculture and Forestry shall develop an annual, nontransferable specialty license for the production of prescribed marijuana for therapeutic use and shall limit the number of such licenses granted in the state to no more than one licensee. Continue reading “Louisiana MMJ bill”

Here’s a chart showing how Colorado has been converting the so-called 15-percent producer tax to a weight based tax:

	Bud price	Bud tax in pounds	Bud tax in ounces	Bud tax in grams
2014	$1,876	$281.40	$17.59	$0.62
2015	$2,007	$301.05	$18.82	$0.66
	Trim price	Trim tax in pounds	Trim tax in ounces	Trim tax in grams
2014	$296	$44.40	$2.78	$0.10
2015	$364	$54.60	$3.41	$0.12

2014 data used to create the 2015 rate comes from here:  https://www.colorado.gov/pacific/sites/default/files/AverageMarketRate.pdf

2014 rate is explained here:  https://newrevenue.org/2014/04/09/colorados-marijuana-tax-62-cents-per-gram-of-flowers/

Taxing “sin,” or something the state disapproves of, gives the state a financial incentive to increase it. This article or opinion piece from Alabama lists tobacco, alcohol, gambling, marijuana — and expands the list to include abortion. It contains this quote from Dave Barry:

“The only danger I see looming ahead is that the tobacco industry will get tired of serving as the bag person for the anti-smoking effort and actually quit selling cigarettes. In that case, the only way to keep the anti-tobacco money flowing in would be for the various governments to join forces with the legal community and sell cigarettes directly to the public out of post offices.” Continue reading “Sin tax theory”

Colorado’s current producer tax rates on marijuana – replacing the 15-percent tax in the Constitution – are the subject at https://www.colorado.gov/pacific/sites/default/files/AverageMarketRate.pdf.

Bud is taxed at 66 cents a gram, trim at 12 cents a gram. Here’s how we get there:  The “average market rate” — which substitutes for real prices — for bud is now $2,007 a pound; for trim, $364 a pound. Multiply those by 15 percent to get the tax per pound, divide by 453.592 to get the tax per gram.  That’s a little higher than in 2014.

One way to approach tax design is  like bridge building.  Anyone can do it.  Throw a plank over a creek and you’ve got yourself a bridge. Say marijuana consumers pay an extra X percent at the retail counter and you’ve got yourself a tax.

At a primitive level, that all works.  For a while.  But the plank won’t handle much traffic.  And with the marijuana tax, what happens when market forces drive prices (and taxes) down?  What about a free pot with pipe purchase?  And employee discounts?  And pilfered product — or product that’s “lost” in transit?  The way we tax alcohol and tobacco is not vulnerable to these problems.  More here:  https://newrevenue.org/2015/04/28/weight-base-arbitrary/.

I got a call from 202 769 5226 (a DC number) from a woman who said her name was Shirley Carter of the IRS. Her accent was foreign. She furnished me Badge number 1090885.

There was a problem with my returns between 2008 and 2013, she said. (Note: The statute of limitations has run on some of those years.)  “Why haven’t I seen anything in the mail?” I asked. You must have misplaced it, she told me.

I asked her to remail the material. She hung up.  And hasn’t called back.

A call to that number yields only hold music.

The IRS does not call out of the blue.

Googling that number, I see this:  http://www.whocalledme.com/PhoneNumber/202-769-5226 Continue reading “IRS impostor “Shirley Carter” calls on the phone”

Here’s an excerpt from a January 7, 1934 NYT article reporting advice that the head of the Finnish alcohol monopoly gave the United States about returning to legal alcohol — which had happened December 5, 1933:

A friend objects to a weight base (X cents per gram) for taxing marijuana. “Crop quality varies enormously,” he says, “so it would be arbitrary to assess the same tax per weight for all of it.”

(For a look at an alternative — taxing by seller’s claims of THC — here is a link: https://newrevenue.org/2015/07/14/swifts-sex-tax-and-stated-thc/.)

But I still like a weight base (except if we can tax concentrates by potency).  Any tax will distort the market, one way or another.  A weight base is not perfect, but a price base is worse.

Take the beer tax. It’s based on volume only – barrels, or gallons.  Volume for a liquid is like weight for a solid.

The federal beer tax is $18 per 31-gallon barrel. State beer taxes are based on gallons, too. All these taxes apply regardless of price, or alcohol content – or quality.

Folks worry that a cannabis tax based on weight will create an incentive to make each gram as potent as possible.

But that same incentive is present with beer.   Continue reading “How a weight base for marijuana taxes is less arbitrary than beer taxes”

Here from vox.com are two objections to marijuana retail monopoly that don’t hold up, in my opinion:

“For states to establish a monopoly on marijuana production and sales, voters or elected officials would have to approve laws that essentially give state governments control over the marijuana industry. Even if a majority of Americans support legalizing marijuana, it’s unclear whether they would support turning their state into a pot dealer — and even if they did, state governments might be reluctant to do this, since it would mean forcing state employees to violate federal law . . . ” That’s from http://www.vox.com/2015/4/27/8500531/marijuana-legalization-commercialization-prohibition.

First, voters in some states might like monopoly: A poll I did among North Carolina voters in 2013 showed a clear preference for state stores (58 percent), our model for liquor, over private stores (19 percent), with 23 percent undecided. https://newrevenue.org/wp-content/uploads/2013/03/nc-marijuana-polling-march-2013.pdf, page 2.

Second, in the face of federal law, North Bonneville, Washington, is already selling marijuana via a quasi-monopoly, a Public Authority of the kind described in Chapter 4 of the RAND Report. See  http://www.washingtonpost.com/business/economy/a-local-government-in-wash-state-tries-to-corner-the-market-on-marijuana/2015/03/16/fccb8216-c9b7-11e4-b2a1-bed1aaea2816_story.html.  No arrests yet.

Not only a retail monopoly, of the kind that 17 states have for liquor, seems plausible.  Production monopoly offers a lot of control;  Louisiana is considering having LSU do the growing, as mentioned in a later post.

 

UPDATE May 8, 2015:  A volunteer has come forward.  Details as time goes on.

The Center for New Revenue seeks a volunteer researcher.   Continue reading “Volunteer researcher wanted — Found”