The Center for New Revenue

Federal Excise Taxes — Lowry is a good introduction to the field.  I learned some things, like this example:

ad valorem taxes imposed at the manufacturer’s level could provide an incentive for value-added options to be ordered further down the supply chain in an attempt to minimize the tax burden. For example, the manufacturer tax on firearms is levied on the assembly of a complete rifle, but any add-ons or modification kits to that rifle are not taxed.

Continue reading “Introduction to Excise Taxes, by Sean Lowry of CRS”

A video of the November 18, 2014, Rhode Island panel on marijuana legalization is here: (http://www.rifuture.org/regulate-ris-marijuana-forum-packed-with-information.html). In the second panel, the lower video, I come in at about the 18’20” mark with comments about how collapsing pre-tax prices might create problems.  Other panelists are Michelle McKenzie, Senator Josh Miller, and Mason Tvert.  Jared Moffatt moderates.

 

 

Oops.  The detailed analysis of the economics of a federal marijuana tax by the Congressional Research Service (Gravelle and Lowry) cites an article of mine for the proposition that “state monopolies for marijuana production or distribution cannot occur while it is still illegal at the federal level because state governments cannot force the employees of such hypothetical operations to engage in the marketing of a drug that is illegal at the federal level. See Pat Oglesby, ‘States May Be Stuck with Second-Best Marijuana Taxes,’ State Tax Notes, June 2, 2014, pp. 539-544.”

I wrote that, but I now see a possible path to state marijuana monopoly. The doctrine of judicial standing means that if you violate federal law, I probably can’t sue you (and I can’t sue the federal government either). So if you are not paying your taxes, or if you are falsely claiming disability benefits, I can’t take you to court. I can turn you in, or tell the press. It’s up to the federal government to enforce the law.

Substitute “a state” for “you” in that thinking and you kind of get the doctrine of standing. A state that violates a federal law is not subject to Citizen’s Arrest. If the federal government lets the violation go, the courts probably will, too.

A difficult path.  More to come.

 

Jane Gravelle, whom I remember from the 1980s as a true tax professional, and a colleague named Sean Lowry have issued a report on marijuana taxation here (http://fas.org/sgp/crs/misc/R43785.pdf),  It’s more economics than law, and I don’t agree with some of it, but I feel like the field of folks looking at the minutiae of marijuana tax design has expanded.  I think that’s good for America.

If the government wrote a check to every church’s minister, that would be Establishment of Religion, right?  Then what about tax breaks for every minister?  Code section 107 gives tax breaks for housing to any “minister of the gospel” (expanded in Regs to cover rabbis, imams, etc.).  If that’s not the kind of caught-red-handed establishment of religion the Founders forbade in the 1^st Amendment, what is?

But the Seventh Circuit found yesterday that plaintiffs challenging the tax break for “ministers of the gospel” in Code section 107 lacked standing to sue. No particular personal injury Continue reading “Religion remains established for lack of standing”

I’m to be on a panel on marijuana legalization at the meeting of the National Conference of State Legislatures in Washington, DC, on December 12. http://comm.ncsl.org/MeetingAgenda/tabid/193/s/2/mpid/72623212/Default.aspx Continue reading “Speaking to State Legislators in DC”

I’m to be on a panel on marijuana legalization at Brown University in Providence on November 18: https://www.facebook.com/events/1477664202522909/.

 

This blog is very skeptical of the ability to measure THC accurately enough to tax it.  Here is an argument that testing is accurate enough: “Skeptics say it is too difficult to measure THC, but that’s not very convincing when High Times magazine offers the same kind of product specs you’d find in an issue of Stereophile or Car and Driver Magazine.”

But even claims of horsepower have been found inaccurate. And nobody taxes horsepower. The sampling of bud leaves the door open to manipulation and abuse – by taxpayers or government.

Accuracy for taxation is not the same as accuracy for journalism — or advertising.  And if the incentive shifts to make low THC claims profitable, I would not count on taking those low claims to the bank, either.  That’s where I look to a stated THC tax as an option, as suggested by Beau Kilmer and David Ball, described here at page 541 note 17.  Remember what happened to statements of tar and nicotine content on cigarette packs:  they are not there any more.

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Lots to argue with in a Forbes article here  that attacks marijuana taxation:

1. “It’s a basic principle of sound tax policy that the code should not pick winners and losers or disproportionately target certain industries or groups of taxpayers.” There’s a grain of truth there, but pushed to this extreme, it leads to taxing whiskey like wheat, and marijuana like milk.

2. “Because marijuana can be purchased as a cigarette, an edible, a liquid, or vapor, all with a wide variety of concentrations, a specific excise tax is untenable.” That’s a complete red herring. No one else suggests taxing weight or potency at the product level. That would be like taxing rum punch like vodka shots. Just as you tax the rum in rum punch, not the punch product, you would tax the marijuana that goes into edibles and so on, not the final product.

3. “There is no reason why the tax code should deny ordinary and necessary business expenses to legitimate businesses established under state law.” Well, you might think advertising and marketing of marijuana might be (a) unwelcome on policy grounds and (b) protected under some reading of free speech. Denying deductions for those expenses might be the best you can do. More here.

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Ed Kleinbard’s book starts with a free-market slant (much of the following is paraphrased):

 Private enterprise ≈ path to greater national wealth and is conducive to the preservation of personal liberties.

And doesn’t oppose regressive taxes:

 Surprisingly, the progressivity of tax rates is negatively correlated with the reduction in inequality a country achieves.

But moves on to blast anti-tax hysteria: Continue reading “We Are Better Than This — Kleinbard”

Rosemary Habib is the author, along with Reuben Finighan and Steven Davenport, of “Testing for Psychoactive Agents,” BOTEC Analysis Corp., http://liq.wa.gov/publications/Marijuana/BOTEC%20reports/1c-Testing-for-Psychoactive-Agents-Final.pdf (Aug. 24, 2013), which seems to me by far the leading analysis of that topic done to date. She graciously agreed to let me print her thoughts about the bud-trim line for a marijuana tax.

My question:  

Updating https://newrevenue.org/2014/05/12/can-the-bud-trim-line-hold/:  Let’s say there’s a huge tax on bud and a small tax on trim.  Would that give producers an incentive to cheat – to shift bud, at the margin, just a little, into the trim category and then use it to make concentrates?

Might not a tax-evader deliberately characterize bud as trim to boost the THC content – and thus value – of concentrates?  That evasion depends on the purchaser believing that he is getting a better, more valuable product — edible, vaporizer cartridge, or whatever.  And that belief would need to come from THC labeling (however inaccurate) or some other claim or experience or report.

Rose Habib’s response:

My first impression is, yes it could be more economical to move lesser buds over into the trim pile.  A lot of that depends on the market.  Continue reading “Rose Habib on the Bud-Trim Line”

This document freezes producer marijuana taxes through the end of 2014: Average market rate late 2014.

These bills sometimes disappear. Here is the text of New York State Senator Liz Krueger’s bill imposing “an excise tax of $50.00 per ounce on marihuana and $50.00 per quarter ounce of concentrated cannabis.”  http://open.nysenate.gov/legislation/bill/S6005-2013 Accessed 14 September, 2014.

BILL NUMBER:S6005 Continue reading “NY bill: bud $50/oz.; concentrates $200/oz.”

Several posts here have looked at whether taxing bud at one rate and trim at another is viable.

One argument that the line is self-enforcing, as bud is smoked and trim made into concentrates.   But even without a tax incentive to put bud in the trim pile, businesses do just that.  Here is an ad, downloaded 14 September 2014, promising concentrates made from . . . ALL BUD NO TRIM!

 

 

 

Colorado just avoided a 50-percent hike in the rate of tax on flowers or bud, from 62 cents a gram to 95 cents.  An administrative tax increase was squarely on the table, put there by a finding of fact by Colorado’s Marijuana Policy Group.  But the Department of Revenue rejected that finding and held rates steady.

Continue reading “Colorado freezes marijuana tax rates”

This is an October 30, 2014, update, of a mid-August post:

Rates of $35 an ounce for potent flowers, $10 an ounce for less potent leaves, and $5 per immature plant: Those are the tax rates in Oregon’s Measure 91, which recently qualified for the November 2014 ballot. A reader asks: Are they too high? Are they too low? And how about the rate of $50 per ounce, reducible by regulations for (presumably less potent) parts of the plant, in Alaska’s Ballot Measure 2 (http://ballotpedia.org/Alaska_Marijuana_Legalization,_Ballot_Measure_2_(2014),_Full_text_of_initiative)?  I’ll answer a different question.  Alaska has an advantage other western states is that its internal laws don’t freeze voter-passed tax laws.  Oregon’s law gives no advantage to voter-passed laws, and its 3/5 supermajority requirement for tax increases is less burdensome than some states’ rules.

How about those rates?  To beat around the bush, the three hardest words in the English, according to Think Like a Freak, provide my answer. (Digressing further, the authors of that book, and of Freakonomics, feature my friend and Center for New Revenue board member Joe Murphy here: http://freakonomics.com/2012/12/06/the-things-they-taught-me-full-transcript/.) Continue reading “Marijuna tax rates in Oregon and Alaska”