Basic marijuana questions for tax and drug policy

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 What would be the revenue cost if 280E were repealed, or targeted at selling expenses alone?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”

Government-Owned Marijuana Stores Pay No Income Tax

Ben Leff, the tax professor who wanted nonprofit marijuana businesses to be exempt from federal income tax, just concludes that state and municipal stores seem to solve the problem.  Not just the 280E problem — they pay no tax at all.

“The Case for Government-Owned Marijuana Stores”

Benjamin Moses Leff

Last spring (3/7/15), a little store called the Cannabis Corner opened up in the small town of North Bonneville, Washington, about an hour by car from Portland, Oregon. Continue reading “Government-Owned Marijuana Stores Pay No Income Tax”

Oregon’s crazy tax rates

Report from Oregon: “Once the state’s new rec rules are fully implemented, the 25% tax will be downgraded to a 17% sales tax.”

That’s crazy. It illustrates how early in the process of figuring out how to tax marijuana we are – or else how Legislatures don’t work. Businesses will struggle at first. Any tax relief should happen early, not late.

The RAND Report, Considering Marijuana Legalization: Insights for Vermont and Other Jurisdictions, explains how taxes should go up over time. Why Oregon would ratchet them down is hard to figure.

“A brand-new legal marijuana market will not soon be stable. Fluctuating pretax prices would push after-tax prices around. Early on, the industry would likely suffer from lack of production capacity. Short supply would result in high early legal pretax prices.Adding high taxes to those high pretax prices would tend to drive consumers to bootleggers, whose main selling point would be lower prices. So revenue and drug policy would suffer from too ambitious a tax plan.

“Over time, legal businesses’ pretax costs should drop, for two reasons. Continue reading “Oregon’s crazy tax rates”

Bundling fixes

In Vermont, a legislative “committee passed an amendment 4-3 that prohibits dispensaries from selling non-marijuana products in a bundle with marijuana. Sen. Michael Sirotkin, D-Chittenden, presented the amendment, saying he did not want dispensaries to sell $50 t-shirts that come with a handful of free joints.” The story is here.

That’s an easy way of addressing bundling – selling taxed goods with untaxed goods for one price. This problem doesn’t show up when you tax by weight, or THC — just when you tax by price.  California’s AUMA proposes another useful solution:

“(b) Except as otherwise provided by regulation, the tax levied under this section shall apply to the full price, if non-itemized, of any transaction involving both marijuana or marijuana products and any other otherwise distinct and identifiable goods or services, and the price of any goods or services, if a reduction in the price of marijuana or marijuana products is contingent on purchase of those goods or services.”

 

WA marijuana tax cut proposal

[UPDATE 18 March 2018:  In hindsight, I would have beenless sympathetic to that proposed tax cut. Now, in WA, “the price of a [fully taxed] legal ounce of cannabis sells for less than a black-market ounce.”  Sometimes “Half of the black-market price.”  https://mjbizdaily.com/washington-state-cannabis-supply-hits-new-low-spurs-calls-change/.]

My friend Dale Gieringer sends this article (noticed by Brett Stone) about a proposal to cut Washington’s marijuana tax.  The rationale is the ongoing strength of the black market.

I don’t know the facts on the ground about the black market, but I might be for this kind tax cut – IF IT’S SUNSETTED – that is, if the tax rate went back up automatically after a set period. As the sunset ends, if the legislature thinks the rate is still too high AT THAT TIME, it can keep the rate low, by extending the lower rate.  (I was recently accused of being “anti-marijuana,” but I’m an analyst rather than an advocate.   I do see cannabis as a revenue source, and it turns out that I’m mostly looking to get more revenue rather than less, so I can see how someone would think I’m anti-.  So it’s comforting to see a tax cut I might support.)

The Economist just published this:

If, starved of sales, the black market shrinks beyond a point of no return, taxes could later go up, restoring the deterrent. There is precedent for this. When the prohibition of alcohol ended in 1933, Joseph Choate of America’s Federal Alcohol Control Administration recommended “keeping the tax burden on legal alcoholic beverages comparatively low in the earlier post-prohibition period in order to permit the legal industry to offer more severe competition to its illegal competitor.” After three years, he estimated, with the mob “driven from business, the tax burden could be gradually increased.” And so it was (see chart 3). Continue reading “WA marijuana tax cut proposal”

Why Oregon taxes marijuana by price

Anthony Johnson, the architect of the Oregon Initiative with the per-ounce tax, kindly agreed to let me quote him: “Oregon moving from a weight-based tax to a tax at the retail level was more about convenience for the industry and the state. Growers and retailers advocated for the switch and state regulators and policymakers were happy to oblige.”

Some background: I got into this when the Oregon Legislature asked me to testify last year on that issue. Here is my written testimony: https://newrevenue.org/wp-content/uploads/2015/02/oglesby-testimony-oregon-16-feb-2015.pdf. Here is the audio of my telephone testimony 16 February to the Oregon Joint Legislative Committee on Measure 91:  http://oregon.granicus.com/MediaPlayer.php?clip_id=8165  — 1:20:40 is where I start, and I finish by 1:38:00.  At about 1:36:51, Co-Chair Lininger says, “That was really a delightful phone call.”

Political opposition by growers to the hassle of paying the tax was one factor behind the retreat.

Another factor was the awkwardness of exempting medical marijuana from a production tax. It’s awkward for raw product to be designated irrevocably as medical or recreational, because the market may demand more or less of each category later on, when the consumer sale occurs. And irrevocable designation is not just a guess, it’s a bother.

Friends in Oregon reminded me of some other factors: Continue reading “Why Oregon taxes marijuana by price”

Colorado taxes by weight

My friends and Jon Caulkins and Beau Kilmer (and co-authors with me of the RAND Report, Considering Marijuana Legalization: Insights for Vermont and Other Jurisdictions, http://www.rand.org/pubs/research_reports/RR864.html) fail to mention that Colorado taxes marijuana by weight. This is not an error, just an omission.

They have this statement: “Oregon joins Colorado and Washington in assessing taxes as a percentage of value.” (Paywall.)

That’s true, but Colorado taxes by weight, too, as well as by percentage of value. That point is often overlooked, and it’s explained more legibly on pages 79 and 80 of the RAND Report, Considering Marijuana Legalization: Insights for Vermont and Other Jurisdictions, http://www.rand.org/pubs/research_reports/RR864.html, pasted crudely here:

Colorado side-stepped its constitutional authorization of a 15-percent “excise tax to be levied upon marijuana sold or otherwise transferred by a marijuana cultivation facility to a marijuana product manufacturing facility or to a retail marijuana store” (Constitution of the State of Colorado, Art. XVIII, section 16) and ended up taxing something it could measure, so it taxed bud at $0.62 per gram, trim at $0.10 per gram, and seedlings at $1.35 each. Continue reading “Colorado taxes by weight”

Pueblo County, Colorado, phases marijuana taxes in

Following the idea of H.R. 1014 by Congressman Blumenauer, which would impose a federal tax starting at 10 percent and rising to 25 percent, Pueblo County, Colorado, voted in November to phase in its marijuana excise tax, with the rate going up every year for five years.

Here are the results: 59 percent yes, 41 percent no. http://county.pueblo.org/government/county/department/clerk-recorder/official-election-results

The official text is downloadable here: http://county.pueblo.org/pueblo-county-ballot-initiatives, and pasted here: 

BALLOT ISSUE NO. 1B:

SHALL PUEBLO COUNTY TAXES BE INCREASED BY $3,500,000.00 (FINAL PHASED IN FULL FISCAL YEAR DOLLAR INCREASE) ANNUALLY AND BY SUCH AMOUNTS AS ARE RAISED ANNUALLY THEREAFTER BY IMPOSING AN EXCISE TAX OF FIVE PERCENT (5%) ON THE FIRST SALE OR TRANSFER OF UNPROCESSED RETAIL MARIJUANA BY A RETAIL MARIJUANA CULTIVATION FACILITY WITH THE RATE TO BE PHASED IN BY STARTING AT ONE PERCENT (1%) IN 2016 AND INCREASING TO TWO PERCENT (2%) IN 2017, THREE PERCENT (3%) IN 2018, FOUR PERCENT (4%) IN 2019, AND FIVE PERCENT (5%) IN 2020 Continue reading “Pueblo County, Colorado, phases marijuana taxes in”

Don’t be misled: Colorado still taxes cultivators by weight

A document submitted to Vermont’s Senate Finance Committee misleadingly says “Colorado began with a cultivator tax, which was eliminated on September 16, 2015.” Yes, it was eliminated —  but only for that one day, as part of Colorado’s strange marijuana tax holiday, mandated by the state’s Taxpayer Bill of Rights. The cultivator tax came back — on September 17.  It’s working.

And that tax is in fact imposed on weight, not percentage of price.

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.

Before a license is issued, inspectors check the grower’s scale. Continue reading “Don’t be misled: Colorado still taxes cultivators by weight”

Criticism from Vermont

Criticism of my “Sharing the Wealth from Marijuana Legalization” article in www.VTDigger.org prompted this reply, which is waiting for approval at: http://vtdigger.org/2016/02/02/patrick-oglesby-sharing-the-wealth-from-marijuana-legalization/

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Thanks for reading. Here are some responses. More to come, maybe.

“Poor writing and fuzzy subject.”

— Ouch! You’re standing on my sore foot.

“Oligarchy,” “disenfranchised,” and “The tax ‘wealth’ will be eaten up by enforcement, studies, testing equipment, training, additional public sector school employees and their related pay and golden benefit packages, prevention measures, counseling, medical bills, unemployment compensation and the growing of the bureaucracy. It will all be good until the full force and effect hits society.”

— Yes, lack of trust in government is a bigger problem than missing out on cannabis revenue, or bad cannabis rules. Why have sensible revenue if the government is just going to waste it? Continue reading “Criticism from Vermont”

Sharing Mj wealth for Vermont

Beyond Democratic Socialism in the form of government ownership, voucher privatization, discussed here, where every voter gets a transferable quota, representing a fraction of the total amount of cannabis to be grown that year, looks a lot like the way Alaska shares oil wealth.

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As Vermont considers marijuana reform, here is an article published by VTDigger, a project of The Vermont Journalism Trust, a 501(c)3 nonprofit.

PATRICK OGLESBY: SHARING THE WEALTH FROM MARIJUANA LEGALIZATION

Editor’s note: This commentary is by Pat Oglesby of Chapel Hill, North Carolina, who is the director of the nonprofit Center for New Revenue, a former chief tax counsel of the U.S. Senate Finance Committee, and an independent co-author of the RAND marijuana report for Vermont. The views presented here are only his own.

Passing a law that shares wealth may be controversial. But what if the wealth doesn’t exist unless the law is passed?

Think of the wealth a government creates when it legalizes a drug. There’s legal commerce, and legal wealth, that didn’t exist before. In a pure free marijuana market, all that previously illegal wealth would go to capitalistic businesses. In a pure state monopoly, from seed to store, it would all go to the people – or, at least to their representatives.

Between the extremes, there’s a hybrid: Continue reading “Sharing Mj wealth for Vermont”

Tax rules for campaigns — Soltani

For many of us tax policy people who have seen tax laws made, campaign finance reform is a sore spot, since special interests donate to politicians and get favorable tax rules.

My friend Abdi Soltani, executive director of the American Civil Liberties Union of Northern California, whom I met when we were on the California Blue Ribbon Commission on marijuana legalization, has been thinking about campaign finance reform. He has an article, worth reading in its entirety, containing six ways to use tax rules to address the campaign finance problem.  Here are excerpts: Continue reading “Tax rules for campaigns — Soltani”

3.5% tax yields $8 per person

I’m looking at how California localities might tax cannabis – both medical and eventual adult use – in connection with a panel appearance coming up.

How much might they collect?

In 2014, the City of Denver collected about $8 per man, woman, and child from its 3.5 percent tax on recreational marijuana.

Here’s how I get that number. Continue reading “3.5% tax yields $8 per person”