The Center for New Revenue

Patrick Oglesby, former Congressional tax committee staff lawyer and founder of the Center for New Revenue, a North Carolina-based tax policy nonprofit, has been named to head a new IRS-Treasury Task Force on cannabis tax policy.  IRS Chief Counsel W. Paul Wilkins said, “We welcome Pat back to government service.  With marijuana legalization looming on the federal level, the executive branch needs to weigh in – and to have someone work with Congress to develop tax laws we can effectively and efficiently administer, including a marketing-focused substitute for 280E.” Continue reading “IRS Opens Cannabis Tax Task Force”

University of Texas-Arlington Professor Roger Meiners proposes a tax on robocalls in the Wall Street Journal.  The rate would be one cent per call.  To make it work without litigating which calls are unwanted, he would apply it to ALL calls.  That’s simplicity over fairness.

He proposes:  “Even a chatterbox who makes 50 calls a day would pay a mere $15 a month” for 1500 calls.  That seems pretty doggone low.

Since we need to identify the phone that is making the calls, can’t we start the tax, like income tax, with a standard deduction per phone number?  Give every number 1500 calls a month.  So make 1500 calls or fewer, you owe no tax.  For 1600, you owe $1 ((1600 -1500) x $.01) .  That seems fairer — if it’s doable. Continue reading “Tax on Robocalls — Making It Simple”

How should taxpayers and the IRS treat logos under 280E?

A cannabis seller’s removable logo may leave  the object to which it is affixed deductible.  A non-removable logo, I’d guess not, but I’d welcome hearing the other side of the question.

Tax law so far has put little weight on the line between cost of goods sold and selling expenses.  A singular exception is section 280E:  Sellers of cannabis can deduct only cost of goods sold, so advertising and marketing expenses lose out.  Plain packaging of cannabis is deductible, but how about packages with branding, or logos? Continue reading “280E and Logos”

To replace a tax or fee on opioids, discussed here that has been ruled unconstitutional, Governor Cuomo’s New York budget proposes a straightforward opioid tax based on morphine milligram equivalents (MMEs):

The tax is would be a quarter of a cent ($.0025) per MME if wholesale the cost per MME is less than fifty cents ($.50).

The tax is would be a cent and a half ($.015) per MME if wholesale the cost per MME is greater than or equal to fifty cents.

So weak opioids would taxed less than strong ones.  Can’t the user just take a lot of weak opioids and get the effect of one strong dose?  Are opioid products so different that they merit discontinuous tax burdens?  And why have a flat tax amount once a threshold is reached? Continue reading “Does New York’s opioid tax idea make sense?”

I was disappointed to see the usually reliable Tax Policy Center repeat the message of the cannabis industry and the libertarian right, saying that “high taxes” on marijuana in California are to blame for slowing revenue growth. Continue reading “Licenses, not taxes, are the main problem in California”

A fair argument against weight-based taxes on raw marijuana plant material is that different parts of the plant need different tax rates.  So categories are needed.  A particularly difficult line to draw may be that between bud (flower) and trim (leaves).  That topic has been covered here, in a link below in my message to the California Department of Tax and Fee Administration via www.cdtfa.ca.gov/contact.htm. Continue reading “How is bud-trim line working in California?”

Chapel Hill, North Carolina, February 19, 2019. The Center for New Revenue today announced that Professor Douglas A. Berman of Ohio State University’s Moritz College of Law has joined its Board of Advisors. Professor Berman holds the Newton D. Baker-Baker & Hostetler Chair in Law, and is Executive Director of the Drug Enforcement and Policy Center.  A graduate of Princeton and the Harvard Law School, where he was an editor of the Harvard Law Review, he has written widely on drug policy, criminal law, sentencing, and more.  He operates the Marijuana Law, Policy & Reform Blog, http://lawprofessors.typepad.com/marijuana_law/

“When the Center for New Revenue began in 2011, the study of cannabis legalization policy was in start-up mode.  Professor Berman brings our Board beyond the friends and family stage,” said Center founder Pat Oglesby.  “Now the stakes are growing.  Doug Berman brings recognized expertise to the expanding discussion of cannabis policy.  It’s an honor to have him join the Center’s Board.”

Here is a draft Boston ordinance endorsed by Shaleen Title, MA marijuana czar. Boston ordinance Shaleen 27109002052019120048652

The draft is embedded in a long city agenda.  Click on the link, and search for “minority-owned.”

My talk given today at 1:30 PST at North American Cannabis Summit, http://northamericancannabissummit.org, in Los Angeles.  summit  final nacs_jan_29_2019.

Description
Public health policy for cannabis needs a government revenue component, and taxes on cannabis (or profits from government sales) can help arrive at a price for consumers that both modulates consumption and marginalizes the illegal market. However, a lot of current tax schemes are weak, flawed, and rigid. Early, primitive taxes fail when pre-tax prices collapse, and they inevitably will as the market matures. This session will compare cannabis revenue techniques and a variety of jurisdictions’ revenue laws, explain why many current cannabis taxes do not serve public health, and evaluate possibilities of improving cannabis revenue laws.

States have proliferating categories of cannabis products to tax by weight – categories designed to be proxies for potency.  Here’s an explanation I got about one in Nevada from Jorge Pupo, Deputy Executive Director, Marijuana Enforcement Division, Nevada Department of Taxation, who authorized me to share it in a talk I give in Los Angeles next week at the http://northamericancannabissummit.org.

“Small bud or popcorn bud tends to be lower in THC and mainly used for making pre-rolled joints or mixed with the trim for extraction.

“It is pretty well established in industry what “popcorn bud” is. It tends to be a lot smaller than the average flower and found low in the lower part of the plant. It is smaller because it is harder for light to reach the lower end of the plant, even when fan leaves have been removed [a problem for sampling for THC, but that’s not my point — PO].  The Department marijuana auditors and inspectors check the trim inventory and small buds or popcorn during the routine inspections.”

How workable that is, I don’t know.  Colorado has six different categories.  But this approach aims at potency more directly than an ad valorem tax does.

 

 

I can’t find the 2018 Marijuana Policy Project report for Rhode Island on the web, so here it is:  2018 mpp report regulation-report.

Here is an excerpt:

price-based taxes suffer from two problems. First, the price of legal marijuana will likely continue to fall as the market becomes more efficient and production costs decline. Revenue from a price-based tax will thus fluctuate with price, meaning that it will likely decline over time. If states are looking to marijuana taxes for a consistent revenue stream to fund other programs, taxing the price of marijuana is not necessarily a dependable way to do that. The second problem Oglesby identifies is “phony pricing,” such as product bundling. Product bundling could, for example, involve a retailer selling a marijuana pipe for much more than it’s worth and including marijuana as a free “gift” alongside, effectively avoiding the marijuana tax. He warns that states with price-based taxes should be sure to include language in their legalization law that prohibits this kind of tax evasion. Price-based taxes are also vulnerable to other tactics (some of them legitimate) such as employee discounts and quantity discounts. Continue reading “MPP Rhode Island Report”

A criticism of taxing marijuana by weight is that it should incentivize more potent product, while a price-based tax should not.  Critics have suggested that customers will pay much more for an ounce of potent product – which would bear the same tax as a weak ounce.  Taxing by price, they say, will avoid that incentive.

But new data shows that  potency and price are not tightly related.

Dr. Caroline Weber of the University of Washington sent me this chart:  https://newrevenue.org/wp-content/uploads/2018/11/table_for_pat_oglesby.pdf.  It comes from her and from two University of Oregon economists, Ben Hansen and Keaton Miller, and considers about 60 million retail transactions.

If price followed potency directly, if a gram of 10-percent THC cannabis sells for $7, a gram of 15-percent THC cannabis would sell for $10.50 = $7 (15/10).

But in fact, in those 60 million transactions, a shift between 10 and 15 percent potency typically increases the price of a gram by much less than the 50 percent increase in potency.

In Table 1, the regression coefficient of THC concentration for the tax-inclusive price of cannabis in Washington State is 0.188, if I have the terminology right.

Using Table 1: If a gram of 10-percent THC cannabis sells for $7, a gram of 15-percent THC cannabis would sell for $7.94 = $7 + ((15 – 10) 0.188).

Meanwhile, using Table 2: If THC increases by one percentage point, price increases by 2.05 percent. So if a gram of 10-percent THC cannabis sells for $7, a gram of 15-percent THC cannabis would sell for $7.75 = $7 X (1.0205 to the 5th power)).

Now the sophisticated weight-based schemes in place in Alaska, California, Colorado, Maine, and Nevada, all tax multiple categories of product to tax.  Potent bud is typically taxed at about three times the rate per ounce used for less potent bud.  These weight based taxes may reflect potency better than price-based taxes.

In any event, price is not a very good proxy for potency.

 

Click on 370531229-Senator-Gardner-280E-Score-12-04-2017 for a letter from Joint Tax Deputy Chief of Staff Robert P. Harvey to Senator Cory Gardner (R-CO) indicating that repeal of the section 280E limitation on tax deductions for state-legal marijuana sellers would cost $5 billion over 10 years.  That letter, dated December 1, went out before Massachusetts voted to legalize.  The estimate could go up over time.

I do a speculative analysis, independent of the Joint Tax analysis, at https://newrevenue.org/2017/02/02/5119/.

Dr. Caroline Weber of the University of Washington sent me this chart:  table_for_pat_oglesby.  It comes from her and from two University of Oregon economists, Ben Hansen and Keaton Miller, and considers about 60 million retail transactions.

The regression coefficient of THC concentration for the tax-inclusive price of cannabis in Washington State is 0.188, if I have the terminology right.

A shift between 10 and 20 percent potency would only increase the price of a gram by much less than a doubling.

Here are Maine’s marijuana producer tax rates, in addition to its 10 percent retail tax.  The Legislature overrode the price-based producer taxes that the voter initiative contained:

• $335 per pound of marijuana flower or mature marijuana plants;
• $94 per pound of marijuana trim;
• $1.50 per immature marijuana plant or seedling; and
• $0.30 per marijuana seed.

http://news.cchgroup.com/2018/05/07/maine-enacts-marijuana-taxes/

 

 

I’m posting a table covering cannabis sales in Washington that was prepared by Ben Hansen, Keaton Miller, and Caroline Weber – academic economists out west, the first two authors at the University of Oregon, the last at the University of Washington.  They authorized me to share it.  Click here:  table_for_pat_oglesby

The table shows only a small correlation, 0.188, between (reported or claimed) THC concentration and price per gram, so it seems to chip away at the claim that a price tax base is a pretty good proxy for a THC tax.

The research considers about 60 million retail transactions.

If price followed potency directly, if a gram of 10-percent THC cannabis sells for $7, a gram of 15-percent THC cannabis would sell for $10.50 = $7 (15/10).

But in fact, in those 60 million transactions, a shift between 10 and 15 percent potency typically increases the price of a gram by much less than the 50 percent increase in potency.

In Table 1, the regression coefficient of THC concentration for the tax-inclusive price of cannabis in Washington State is 0.188, if I have the terminology right.

Using Table 1: If a gram of 10-percent THC cannabis sells for $7, a gram of 15-percent THC cannabis would sell for $7.94 = $7 + ((15 – 10) 0.188).

Meanwhile, using Table 2: If THC increases by one percentage point, price increases by 2.05 percent. So if a gram of 10-percent THC cannabis sells for $7, a gram of 15-percent THC cannabis would sell for $7.75 = $7 X (1.0205 to the 5th power).

So upon a 50-percent increase in potency, instead of a 50-percent increase in price from $7 to $10.50, the expected price is less than $8.  The price increase is less than 14 percent.

Now the sophisticated weight-based schemes in place in Alaska, California, Colorado, Maine, and Nevada, all tax multiple categories of product.  Potent bud is typically taxed at about three times the rate per ounce used for less potent bud.  California’s tax for flower is $9.25 per ounce; for leaves or trim, it’s $2.75.

In any event, price is not a very good proxy for potency.  Those weight-based taxes may well correlate with potency better than price-based taxes do.

 

NOLA NTA November 15, 2018

Click on that link to download slides.