The Center for New Revenue

UPDATE, 30 March 2018:

On Twitter, Phil Hackney (@EOTaxProf ) has this and more:
“To be clear this is only a procedural document. It says the IRS will not issue a ruling on orgs claiming exempt status in as an org advancing a line of business if that business involves marijuana. Not the same as saying such orgs do not qualify; no need for such orgs to apply.”  https://twitter.com/EOTaxProf/status/979475478452035584

I agree that the IRS “no letter” rule for marijuana non-profits is of minor direct legal consequence. But people in cannabis community might understandably see this as
(1) deliberately singling them out;
(2) evidence of Administration antipathy – evidence of more to come.

ORIGINAL POST:

A recent IRS ruling, sent to me by Professor Francine Lipman of UNLV Law School, is making waves:  The IRS says it “will not issue a determination letter [about non-profit status] when the request concerns an organization whose purpose is directed to the improvement of business conditions of one or more lines of business relating to an activity involving controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law regardless of its legality under the law of the state in which such activity is conducted.”

“Improvement of business conditions” I don’t quite get. I’m confused. This is not my field. Off the top of my head:

I’m thinking of a distinction between trying to help people break a law and trying to change a law. Continue reading “Nonprofit status for marijuana groups”

California has a ploy to prevent the federal government from cracking down on medical cannabis. I think the state’s ploy is ill-considered and far-fetched.

Here’s the ploy:

“Reporting the cultivation tax:

“. . .

“– You are required to enter adult-use ounces separately from medicinal ounces for each category.”

https://cannabis.ca.gov/2018/ 03/13/important-information- for-cannabis-distributors/

Now I think one of the possible advantages of taxing medical cannabis like adult-use is that cultivators don’t have to decide which is which so soon.  Let the market decide, based on demand as time goes on. Otherwise, shortages and gluts will develop, as identical products have been put into a category that proved wrong. Continue reading “California Scheming”

UPDATE:  As of June 26, 2018; a comprehensive chart is at https://newrevenue.org/2018/06/06/cnr-recommends-cannabis-tax-chart/.  I don’t know that it’s perfect, but it’s useful.

++++

There are 30 states that have legalized medical cannabis.   This is an attempt to collect and present the information that is available on how they tax it.   Continue reading ” How states tax medical cannabis”

Superseded by https://newrevenue.org/2018/02/26/how-states-tax-medical-cannabis/.

“Gresham’s law is a monetary principle stating that ‘bad money drives out good.’ For example, if there are two forms of commodity money in circulation, which are accepted by law as having similar face value, the more valuable commodity will disappear from circulation.” That’s from wikipedia.

The same phenomenon applies to official revenue estimates, it seems to me.

Say an industry has a friendly Member lined up to do its bidding. The ideal tactic for the industry might be to have the Member propose a number of different tax cuts, and get the official scorekeeper to produce revenue estimates for all of them. Then the industry can see which tax cut proposals get lower revenue cost estimates than they believe. Say the industry figures, based on confidential information that the scorekeeper can’t readily discover, that proposal A would benefit the industry by $3 billion, proposal B would benefit it by $6 billion, and proposal C would benefit it by $9 billion. Say the scorekeeper comes back with estimates (to make this very simple) that they all cost $6 billion. So the Member abandons A and B, and gets C enacted.  The bad estimate has driven out the good. Continue reading “Gresham’s law for revenue estimates”

Revenue from marijuana?
Not so fast.
Local retail taxes will weaken.
Local producer taxes will vanish.
State taxes will fail when federal legalization stops anti-import rules.  http://thehill.com/opinion/finance/372396-how-tax-competition-can-threaten-marijuana-revenue  Continue reading “Marijuana tax competition — in Thehill.com”

[See UPDATE from 2 Feb 2018 at the end.]
Amanda Chicago Lewis has a thought-provoking article in Rolling Stone that points out the federal government is making money from federally illegal marijuana. I appreciate her allowing me to take issue with her thought — “the feds might be making way more money by keeping weed illegal than they would by legalizing” — by letting me say, “’The federal government is not going to do this for zero,’ Oglesby says.” Continue reading “280E revenue won’t keep marijuana illegal”

My friend and Chaired Professor Emeritus at UNC Law School Bill Turnier, who taught me tax in the 1970s, authorized me to post this: “The following thought occurred to me about the difference in the taxation of earned income under Nixon and Trump, or more appropriately their administrations. Under the current rate structure it seems that the most disadvantaged income class is that of income derived from personal services. It and some other ordinary income is taxed at the maximum rate of 37%. The 1969 Act introduced a maximum tax rate of 50% on earned income leaving other ordinary income to be taxed at 70%. It is just another marker of how much more the modern GOP represents capital over labor.”

Amen.

A friend asked why this website has been ignoring the GOP Tax Cut Bill. Confession: I’ve been tweeting more than blogging — https://twitter.com/ search for @Oglesby Pat, mostly making three non-mainstream points, reproduced below: The Repatriation Tax Amnesty (“Holiday”) would prove an easy source of gimmicky revenue, the 280E marijuana tax would not be repealed, and the alcohol tax cut is shameful. Yes, I’ve fallen prey to “short-term, dopamine-driven feedback loops” of social media – and to laziness.

OK, here goes for the Tax Cut Bill overall, with bad news and good.

Bad news: The GOP tax bill is the worst tax bill I’ve encountered. We will borrow more money we won’t pay back (in sound dollars). Tilting to the rich, the bill will make the poor poorer.

Good news:  This tax cut bill won’t stand the test of time.   Continue reading “GOP Tax Cut Bill: Bad News and Good”

When I worked on the staff of the Joint Committee on Taxation in the 1980s, a friend who came to the staff from private law practice described the private tax lawyer’s mission in a way I haven’t forgotten: Turning A into B. That is, taking things that should be taxed at a high rate because they belong in one category, and figuring out how to put them into another category – low taxed. Lawyers rather than accountants have the word-training to take on this kind of mission.  She also called the mission “Turning This into That.”

(I’ve been looking recently at marijuana taxation, where the stakes are so low that lawyers can’t be bothered. In Oregon, Colorado, and several newly-legalizing states, users turn taxed recreational cannabis (Category A) into untaxed or lightly taxed medical cannabis (Category B) with little oversight or pushback).

The so-called Tax Reform bills working their way through Congress offer huge opportunities for turning A into B. Tax lawyers will make bundles of money.

Here are a couple of opportunities: Continue reading “Turning (Taxed) A into (Untaxed) B”

Senator Bill Armstrong (R-Colorado), not Senate Finance Committee Chair Bob Dole, was the originator of the 280E marijuana tax in 1982. That comes from an article I just ran across.*

I had thought that Bob Dole’s staff had come up with 280E for him, Continue reading “Origin of 280E”

My friend Tom Angell, who compiles marijuana news diligently and fairly, has a partially paywalled piece on the prospects of repeal or reform of the 280E marijuana tax.

He writes, “While rescinding the provision’s application to state-legal cannabis providers is a matter of basic fairness, it would also, on its face, amount to a large tax cut from current rates for those businesses. And that could be a roadblock to success, as Republicans are already struggling to find ways to pay for broader tax cuts they are proposing in the plan. “

I have a less-opposed view toward 280E, as Tom notes. But as for Congress cutting the 280E tax, I’d say the big problem is not the cost of 280E fix, but the slippery slope argument. If the 280E tax gets fixed with a meaningful revenue cost (https://newrevenue.org/2017/02/02/5119/), other taxpayers will insist on fixing other problems that Members are sympathetic to – like the marriage penalty. Then you get in a Christmas tree situation, https://en.wikipedia.org/wiki/Christmas_tree_bill, which could cause the whole tax cut project to stall. So I would expect any tax bill that advances to have a “no loosener” (no industry-specific revenue loser) rule.  Having been a Joint Congressional Tax Committee staffer during the Tax Reform Act of 1986, when the idea was “Everyone suffers to get rate cuts,” rate cuts are the only tax cuts I can see surviving.  But we’ll see.   Continue reading “280E and Tax Reform”

President Trump says multinational corporations have stashed $4 trillion (instead of the commonly mentioned $2.7 trillion) offshore, untaxed. Here are three reasons — Politics, Practicality, and Politics — why all that income should be “deemed repatriated,” that is, taxed immediately.

Politics: The political case is here – the big beneficiaries of repatriation amnesty opposed Trump. Continue reading “Tax All Tax-Haven Income Now”

Here’s how the California 15-percent retail marijuana tax is supposed to work:

[UPDATE:  The 90-day rule does not seem properly calibrated for outdoor growing, where an annual harvest presumably could get sold over 365 days — as consumer demand is presumably relatively steady all year.  To allow the tax to apply to the actual retail price, retailers would need to buy from sellers on a kind of Just In Time basis — not accumulating inventory beyond what they will sell in 90 days.]

Once a cultivator, manufacturer or distributor sells to a retailer, a 90-day clock starts running. The tax amount due depends on which one of two “Cases” fits the facts. Continue reading “90-day rule for California’s 15-percent retail marijuana tax”

As the idea of a robot tax gains interest, Indonesia has a narrow pro-labor tax that is actually in effect.

Tobacco is a huge killer in Indonesia, and the government there struggles to tax it. But it’s also a huge employer, so taxing tobacco nudges against jobs.

So Indonesia taxes machine-rolled cigarettes more than it taxes hand-rolled ones. Continue reading “Indonesian robot tax”

Don’t read this whole post.

Instead, a corrected view of how California’s retail tax works is here (at https://newrevenue.org/2017/10/27/90-day-rule-for-californias-15-percent-retail-marijuana-tax/).  So go there.

The superseded and incorrect material below, for the record, reflects my thrashing around before I understood what California was even trying.  Why anyone would want to read about that thrashing, I can’t imaginge, but I don’t delete much.  Nobody’s perfect. Continue reading “Arm’s length marijuana tax rule in California — superseded”

Speaking to old friend Peter Barnes’s VAT and Sales Tax class at Duke Law and Public Policy Schools today on Excise Taxes.  Here are slides (download): Barnes Sales and VAT 2017.