The Center for New Revenue

“Regulating Marijuana in California,” a Report by the Public Policy Institute of California, does a good job of explaining some of the tax issues involved with legalization.

But rather than dwell on what the PPIC got right, I’ll write about two problems. Unlike my friends who study drug policy broadly, I look just at the tax part.  Mostly, I’ll quote from the RAND Report, Considering Marijuana Legalization: Insights for Vermont and Other Jurisdictions, http://www.rand.org/pubs/research_reports/RR864.html, which is in the public domain, and which I helped write.  The quotes are in bold.

1. Colorado’s weight-based tax

The PPIC Report overlooks the way Colorado actually taxes product at the producer level, which is by weight. The rate of the weight-based tax has changed to approximate 15 percent of the latest market value, but the RAND Report explains it this way: Continue reading “PPIC on taxes”

Reading in the NYT today, about Intel’s Andy Grove: “There was room for improvement, he argued, for what he called ‘job-centric’ economics and politics. In a job-centric system, job creation would be the nation’s No. 1 objective, with the government setting priorities and arraying the forces necessary to achieve the goal, and with businesses operating not only in their immediate profit interest but also in the interests of ‘employees, and employees yet to be hired.’”

Tax rules can nudge toward job creation: In 2013, I suggested some loosening of the 280E tax on marijuana selling expenses:

“And what about salaries of retail clerks? Effective, motivated sales people can stoke demand. But legislators may be more concerned about creating jobs than about dampening demand for marijuana. So they could cap the tax deduction for pay to for sales people, say at the level of the minimum wage. That approach would tend to favor jobs — and spread them around. Continue reading “Job-centric 280E Reform”

Latest on RICO by Joel Warner of IBTimes is here. I’m quoted:

But if RICO lawsuits are so powerful, why haven’t there been more of them since Cooper & Kirk filed the first two in Colorado early last year? It could be that there just aren’t that many folks in the anti-marijuana contingent who have the interest and resources to mount such expensive and complicated legal attacks, even if they’re likely to pay political and financial dividends down the line. “One possibility is the war is over and there is nobody left on the field defending the territory of ‘Just say no,’ ” said Pat Oglesby, a tax attorney who studies marijuana at the Center for New Revenue in North Carolina.

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But another plausible explanation is that there is no money in these suits for plaintiffs.  Warner’s article elaborates on that possibility.  The court that dismissed the most recent suit noted that the plaintiffs had not furnished proof.  Plaintiffs had not even submitted appraisals showing loss of value of property — to try to blame on neighboring marijuana business.  My friend Sam Kamin points out that property values next to marijuana operations in Colorado have typically risen – not declined.   In any event, whatever opponents of legalization are out there, they don’t see RICO as such a formidable weapon that they use it frequently.

RICO and federal income taxes hit private sellers of marijuana but not government stores.  The exemption for governments from RICO is explained here, and federal income tax is explained here.  No federal income tax means no 280E.

https://newrevenue.org/2016/01/05/state-marijuana-businesses-are-immune-from-rico/; http://taxprof.typepad.com/taxprof_blog/2016/02/leff-presents-taxing-governmental-marijuana-sales-today-at-indiana.html

The public-domain 1982 Report of theNational Task Force on Cannabis Regulation on the Regulation and Taxation of Cannabis Commerce is at Report of NTFCR 1982 (55MB — SLOW DOWNLOAD after next click). My friend Dick Evans, Massachusetts lawyer and cannabis activist, was Chair.  It seems quaint to him now, but it should not be lost to history.

It proposes a federal excise tax, based on THC content. And it starts by excerpting this quote, from FDR, speaking of alcohol Prohibition:

“We threw on the table as spoils to be gambled for by the enemies of society the revenue that our Government had theretofore received, and the underworld acquired unparalleled resources thereby. Continue reading “Legalizing Cannabis, 1982-Style”

My friend Don Marron reports on a new sugar tax in the U.K.:

“Beginning in 2018, the United Kingdom will charge the equivalent of 0.75 cents per ounce for drinks that contain more than 3 teaspoons of sugar in an 8-ounce serving and a full cent per ounce for drinks with more than 5 teaspoons per serving. These tax levels are similar to the penny per ounce that Berkeley, California levies on sugary drinks.”

So the tax (0.75 cents per ounce for drinks that contain more than 3 teaspoons of sugar in an 8-ounce serving and a full cent per ounce for drinks with more than 5 teaspoons per serving) yields these results; I take “more than” to mean “at least,” for simplicity:

If there are 3/8 tsp per ounce, the tax is 0.75 cents per ounce
If there are 4/8 tsp per ounce, the tax is 0.75 cents per ounce
If there are 5/8 tsp per ounce, the tax is 1.00 cents per ounce
If there are 6/8 tsp per ounce, the tax is 1.00 cents per ounce.

That leaves a lot of incentive to come in at 4.9 tsp per eight ounces (or 4.9/8 tsp per ounce).  There’s a tax cliff — take one incremental step from 4.99 to 5.01 and . . . OOPS. Continue reading “Clunky, Cliffy U.K. Soda Tax”

Text of Court order dismissing Rye RICO case in CO.

Excerpt:  Plaintiffs insist that the allegations of their complaint regarding the noxious order emanating from the marijuana grow operation near their property permit a reasonable inference that the value of their property is negatively impacted.2 I cannot agree. Plaintiffs’ allegations in this regard – apparently premised on an assumption that “everybody just knows it’s true” – are insufficient to meet their pleading burden. Plaintiffs provide no factual support to quantify or otherwise substantiate their inchoate concerns as to the diminution in value of their property. They do not allege the land has been appraised for lesser value than before the grow operation opened. Continue reading “Rye RICO dismissal — text”

My friend Miles Light supplied this guest posting, aimed primarily at a Canadian readership;   Miles is a Ph.D. economist at the University of Colorado, and is a founding partner at the Marijuana Policy Group, a Denver-based economics consultancy.  I’m delighted to post this.  It cheers me up to see smart, hard-working, public-spirited, and young (compared to me) people like Miles studying the issues.

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Revenue Realities
Miles Light

In the unknown ether of potential marijuana sales and taxes, wild estimates abound. These days, more accurate and realistic estimates are possible. Canadians can ignore them at their peril.

When it comes to legalizing marijuana, the term “anything goes” seems appropriate. In a pattern that follows what happened in other jurisdictions, the economic and political pundits seem to be mystified regarding what would happen when marijuana is legalized in Canada. By far, the most common unknowable unknown is the estimate of tax revenues from pot. Speculation abounds now in Canada, where estimates taken “from the hip” seem to receive equal press and equal legitimacy as quarterly GDP estimates from Statistics Canada. One recent example is a January 28 report by CIBC World Markets, where the author estimates marijuana tax revenues could be “near $5.0 billion”. Unless there is a pot-infused revolution in the Northern Commonwealth, that’s not happening. Continue reading “Dr. Miles Light — Revenue Realities”

Inequality has hardly been wiped out by the income tax, which has turned into a joke as huge corporations put trillions of dollars into untaxed income — offshore. Don’t get me started.

Plus, the power to tax is the power to destroy, and if you want to create jobs, income may be the next-to-worst thing to tax (tax base) you can find. Payroll is worst.

So let’s tax pollution we can measure. Let’s tax carbon. Let’s tax alcohol more. Cannabis is at the bottom of the list, but we’ve got to start somewhere, and we haven’t even tried some of the best revenue models for that substance yet.

 

“It’s too hard to adjust taxes quickly enough,” said Pat Oglesby, a North Carolina tax lawyer who was chief tax counsel for the Senate Finance Committee from 1988 to 1990 and who now researches marijuana taxes. “Legislatures love lowering taxes. Getting them to raise taxes is like pulling teeth.” What’s more, if legislators overdo it and set taxes too high, they’ll risk reawakening a black market in untaxed drugs. — Dan Baum, in Harper’s:

Here’s some context, from the article: Continue reading “Quoted in Harper’s”

The municipally owned cannabis store in North Bonneville, Washington, celebrated its one-year anniversary of operation on March 7. Meanwhile, the municipality of Hancock, Maryland, has agreed to become an equity partner in a medical cannabis business, agreeing to take five-percent ownership of a company that plans a big growing operation there.

Taxing cannabis based on price, instead of, say, weight, creates a host of problems, like the free-pot-with-pipe deal, and others discussed in this HuffPo piece. But there are more problems.

Ever give the bartender a big tip hoping for a big second drink?  Call me cynical, but now that Washington allows excise-tax-free tipping in cannabis stores (see below), I see tricks coming. Take the case of an owner who is a budtender. It wouldn’t surprise me if an owner-budtender generously reduced a taxed prices — with a hope for a return favor. This sale or next.  Not in a negotiation — just in a friendly gesture.  One good turn might bring about another.

When you tax a percentage of price, you run into trouble. Washington state authorities now don’t worry about this. Having dealt with folks, some of them my good friends, who have shifted $2 trillion of untaxed US profits offshore, I’m nervous. Prices depend on relationships.

The troublesome case is not where tipping is “required or a condition of sale, [or]. . . linked to the price of the product to avoid tax obligations.” [The quid pro quo case is illegal – as it should be. If you can catch it. Good luck with that.]

The troublesome case is where the lower price kind of just happens. And then tipping kind of just happens. Continue reading “A cynical look at WA’s tax policy on tips”

‪My tweet: #Marijuana‪ industry’s federal law problems, in order of danger:‬

1. RICO ‬
2. Banking‬
3. 280E tax‬
4. Controlled Substances Act — Illegality‬

My friend Sam Kamin replied:  ‪@OglesbyPat‪ how about bankruptcy? Intellectual property? Problems securing lawyers?‬ Continue reading “Federal threats to mj businesses”

In a paper contained in the London School of Economics document “After the Drug Wars,” three distinguished drug policy men raise this possibility that enforcement doesn’t raise the price of illegal drugs.

I wonder if raising the price of tax-evading black market drugs that compete against legalized drugs is a different case totally. I keep thinking that post-legalization, the black market is a function of two variables, (relative) value and enforcement. After repeal of Prohibition, Roosevelt was big on enforcement, and it reportedly helped.

After looking at four attempts to quantify the effects of tax enforcement, I argue that tax enforcement is quite different from enforcing prohibition. Continue reading “Quantifying the effects of tax enforcement?”

We have to tax something. Here are some things where taxation would do little harm:

Carbon
Tobacco
Alcohol
Cannabis
Legacies
Tax haven income stashed offshore (all of it now).  Much of this income is not really foreign anyway, and comes from U.S. intangibles.  A mandatory deemed repatriation — saying “tax is due now” — would bring in hundreds of billions.  Taxing it at some reduced rate, as many suggest as a compromised, is a pure give-away.  At worst, spread the deemed repatriation over a couple of years.

Here’s our actual list:

Income
Payrolls
Tobacco
Alcohol
Gambling — via state monopoly:  states are getting what they think the market will bear.
Legacies – inheritances – are taxed only marginally today, thanks to a $5 million threshold ($10 million for couples) and gaping loopholes.

The income tax has been regulatorily captured.  A keen observer speculates that Donald Trump won’t release his income tax returns because he hasn’t paid any.  Taxing payrolls is justified by history, and practicality, but it nudges in an unfortunate direction.

U.S. Capitol Historical Society invitation to a memorable event:

When legalizing marijuana, will legislatures do a better job than initiative writers? Continue reading “Questioning open markups”

For marijuana, how might drug policy and tax policy work in tandem?

Should federal law be changed to let marijuana sellers deduct advertising and other expenses? (Only the cost of marijuana is deductible now, thanks to 280E.) What would be the revenue cost if 280E were repealed, or targeted at selling expenses alone? (For another day – should expenses of advertising alcohol, sugar, tobacco, etc., become similarly nondeductible?)

What excise tax bases might the federal government use? Price, weight, THC potency, canopy grow area, electricity use, or what? Should there be more than one federal tax as time goes on? What about fees?

How much revenue is available? Continue reading “Basic marijuana questions for tax and drug policy”