The Center for New Revenue

For tax evasion, there’s an optimal level of enforcement, and an optimal level of crime. You can’t “wipe out” the black market. You can reduce it to a tolerable level. There’s an optimal size of the black market, probably consisting, as suggested below, of “relatively small violators.”

There is still moonshine being made in the mountains of North Carolina, I imagine, but not enough to matter – not enough to be an economic threat to the commercial liquor market that’s regulated and taxed. For law enforcement to scour the mountains every week in search of that last moonshiner would be hugely expensive to the point of being silly and counterproductive. No one I know buys non-tax-paid liquor, and you can’t find it on Craigslist. It took a while after repeal of alcohol prohibition for the black market in liquor to die down.

Before repeal, President Roosevelt’s team put it this way: Continue reading “The optimal amount of crime is not zero.”

The Christian Post reports:

Indiana’s marijuana-smoking church has been incorporated as a tax-exempt religious organization by the Internal Revenue Service according to the church’s founder.

Bill Levin, the founder of the First Church of Cannabis, Continue reading “Indiana Church of Cannabis claims it has 501(c)(3) status”

To beat the illicit cannabis market, you need some combination of law enforcement and low taxes. So it makes sense to set tax rates low, to start. Then, as the industry matures, and pre-tax prices come down, you can phase in higher tax rates.  You need a tax burden that leaves the after-tax price competitive with the black market price. Most folks will prefer the legal product just because it’s legal. Testing and packaging add value, too. So your aim for an after-tax legal price could be roughly at the black market price. As it changes from day to day.

But what rate do you start with? Maybe even zero, a tax holiday – as a transition measure.

So I’m questioning a proposal to beat the black market that has surfaced in Oregon: Switch from taxing by weight (which voters approved last November) to taxing by percentage. Here’s Jeff Mapes’ story: Continue reading “Oregon’s wrong direction  “

Click to see the entire chart, which examines various tax bases for cannabis — or go to page 86 of the RAND Report, Considering Marijuana Legalization: Insights for Vermont and Other Jurisdictions, http://www.rand.org/pubs/research_reports/RR864.html.  That Report explains the conclusions that the chart reaches.

UPDATED May 24:  “Seth Crawford, a marijuana policy researcher at Oregon State University, estimates the state grows three to five times the 150,000 pounds or so consumed by Oregon pot users,” writes journalist Jeff Mapes.

So shifting from a tax on producers to a “point of sale tax” at retail, described at https://newrevenue.org/2015/05/20/oregon-shifts-to-retail-percentage/, would leave the bulk of production tax-free, for export, right?  No wonder growers don’t want to pay tax.  Or am I missing something?  UPDATE:  A friend says I am:   Continue reading “Collection point loophole?”

Preface by PO to the expert’s comments:

If you tax marijuana by canopy area – square feet of space under cultivation – you might be able to measure the area by aerial or satellite images.  That comports with a principle of taxation – tax what you can measure.  The RAND Report for Vermont says potency of raw flowers, and, in many cases, price, can’t be reliably measured.  So canopy area has a lot of appeal as a tax base.

But those images won’t detect indoor cultivation.  Here is some earlier discussion and criticism of an electricity tax aimed at singling out indoor growers. Meanwhile, more powerful batteries may make it harder for law enforcement to detect indoor grows – while reducing the environmental harm from those grows.

But if you want to collect tax on all commercially grown marijuana, what should you do?

I don’t necessarily agree or disagree with the following comments.  But they help the process.

An expert in the industry has this to say:

 “What would you do about indoor cultivation is levels and levels of tricky.  This will take heavy lifting. Continue reading “Indoor grows and canopy tax — An expert comments  “

Superseded by https://newrevenue.org/2015/05/26/oregons-wrong-direction/, link here.

Earlier iteration:  See UPDATE May 25, near the end of this post, for a somewhat more developed analysis.  Still thinking this through.  THIS WILL CHANGE.

Jeff Mapes at the Oregonian writes:

SALEM—Oregon legislators on Monday unveiled a proposed retail sales tax for marijuana that would replace the harvest tax approved by voters.

The proposed sales tax was one of the major provisions included in a new 104-page amendment aimed at implementing the marijuana legalization initiative approved last November by voters. Continue reading “Oregon shifts to retail percentage? — Superseded”

Here are excerpts from a May 13 article by David Downs in the East Bay CA Express that I pass along without necessarily agreeing:

California 2016 legalizers must chose between angering the medical marijuana community with new regulations, versus gaining mainstream voters — who want to see the pot trade “controlled.”

. . .

“Most experts agree that California has among the least structured systems of rules Continue reading “Unresolved tension could fracture and kill CA reform efforts”

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/