The Center for New Revenue

UPDATED April 20, 2016:  Code section 280E supposedly requires disallowance of all expenses other than cost of goods sold, but “[c]urrently, some IRS agents are accepting 280E allocations that disallow 20% to 25% of the expenses (other than Cost of Goods Sold).”   Continue reading “280E — Not Strictly Enforced”

Any commercial legalization of marijuana will face the issue of vertical integration.  The law can require it (as Colorado does in most cases), ban it (as Washington state does for producers and retailers), or tilt toward it or against it. Continue reading “Marijuana taxes: Vertical integration and transfer pricing”

Trying to figure out why one little federal excise “sin” tax is not based solely on weight, volume, or potency (alcohol content), I’ve been stumped. And I still am.  It’s the tax on large cigars — 52.75% of sales price but not to exceed $402.60 per 1,000.  The key advantage for expensive cigars is not the percentage base, but the 40-cent per unit cap — regardless of weight.  Meanwhile, it turns out that makers of small cigars, taxed, like cigarettes, at $1.01 per pack of 20, have deliberately increased their size to cross over into the “large cigar” category – and pay only the ad valorem tax.  To be sure, the excise tax on firearms in section 4181 is imposed by percentage of price — how could it not be?  (Note that one other federal excise tax, the 12% retail tax on heavy trucks, is collected at retail, unlike the standard sin taxes.  Code section 4051.  Here’s more on the collection point, from A.I.:

Major Retail-Level Federal Excise Taxes

1. Retail tax on heavy vehicles — A 12% excise tax applies to the first retail sale of truck, trailer, and semitrailer chassis and bodies, and highway tractors with a gross vehicle weight of 33,000 pounds or more. The tax includes the total sale price, including trade-ins, and is reported on IRS Form 720 under IRS No. 33.​

2. Indoor tanning services — The 10% federal excise tax on indoor tanning applies directly to the consumer, collected by the salon at the point of sale and remitted by the service provider on Form 720.​

3. Retail sales of firearms and certain hunting gear (under special circumstances) — If a manufacturer sells directly to consumers (e.g., at retail or in non-arm’s-length transactions), the federal excise tax on firearms, ammunition, and bows applies at the retail level rather than wholesale. This is determined under Internal Revenue Code §4216(b) and the Pittman–Robertson Wildlife Restoration Act.​

4. Airline tickets — Although technically collected by airlines rather than retailers, the federal passenger ticket tax functions as a retail-level excise: it is included in the price paid by the traveler and remitted by the airline on Form 720.​)

Why do we have this unique tax base?   Continue reading “Large cigars: A rare federal ad valorem “sin” tax”

Though leading drug policy scholars argue for nimble tax rules in the face of an unknowable future,  “The Control, Regulate and Tax Marijuana Act,”  Continue reading “California Marijuana Initiative Freezes Tax Rates Too Long”

Here’s an update about NYT story on Colorado bundling.

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Salient taxes — obvious to the consumer — cut marijuana consumption. Hidden taxes, by contrast, boost revenue. — NPR.

A sales tax added on at the end tends to get ignored by consumers, so it increases revenue.  Fine.  Let the economists say how stupid people are.  I’m sticking with my story.  Being a fan of the administrative efficiency that early collection at a choke point provides, I tend to overlook the biases that different tax structures bring to the consumer’s mind.

Significant retail taxes are crazy.  They allow pilferage and shoplifting (and Oops! Our truck got hijacked).  And bundling — hotel room $200 with open smoking downstairs.  What’s the tax there?

To beat the bootlegger, you need flexible prices.  Legislatures, even at their nimblest, may prove too slow to adjust tax rates adequately.  Uruguay is avoiding that trap:  “If one gram costs $1 in the black market, then we’ll sell the legal product for $1. If they drop the price to 75 cents, then we’ll put it at that level,” says Julio Calzada, a presidential adviser and the head of the National Secretariat on Drugs.

Senator Baucus’s proposal (below) to expand FIRPTA  for foreigners’ income seems to override a number of old (pre-FIRPTA) treaties.  It would tax sales of shares that the Code did not previously tax. Continue reading “A new income tax treaty override?”

Marijuana in NC Flier

One way to get revenue from marijuana, maybe the best way, is to have a government monopoly temper the profit motive.  Professor Rob Mikos says state monopolies make no sense, because having the state do the selling of marijuana puts it in direct violation of federal law.  Now a small town in Washington is thinking of doing the selling itself. Continue reading “Municipal marijuana monopoly? Delegated?”

A tax is imposed upon the privilege of engaging in business as a marijuana producer at the rate of:

(a) $35 per ounce on all marijuana flowers;

(b) $10 per ounce on all marijuana leaves; and Continue reading “Marijuana tax: The tricky line between flowers and leaves”

From golocalprov.com:  Pat Oglesby, the Founder of the Center for New Revenue who recently weighed in on the Colorado taxation scenario for the Huffington Post, addressed legalization — and revenue — with GoLocal.

“After legalization, pre-tax prices of legal marijuana are likely to be lower than current black market prices,” Continue reading “Marijuana Revenue in Rhode Island”

Here’s the original joke from the public domain:

In the small villages of eastern Europe, the rabbi was the undisputed leader Continue reading “Rabbi Joke Applied to Marijuana Taxation”

Thanks to Huffington Post for publishing this.  It’s just about the wholesale level tax, and ignores the retail level tax that also passed Tuesday.  And the low rates.  One thing at a time.

Over 500 groups, including the  NC Center for New Revenue, have signed a letter urging Congressional action to close offshore corporate loopholes and stop tax haven abuse.  Wish us luck.

As a base for a marijuana tax, percentage of price has an apparent advantage of seeming reasonable on its face in some cases — that’s what I heard a lot at the Drug Policy Alliance conference in Denver.  That is, an objection to a weight base (in addition to “it encourages high potency”) is that a series of three 25-percent excise taxes like those in Washington state’s law may seem reasonable, and a tax of say $50 an ounce might seem so outrageously high as to be unenforceable.  We don’t tax anything at $50 an ounce. Continue reading “Marijuana tax base: Grams?”

Left to right:  Jorge Hernandez Tinajero, President, Collective for an Integral Drug Policy, Mexico City, Mexico; Steve Rolles, Senior Policy Analyst, Transform, Bristol, England;  Beau Kilmer, Co-Director of RAND Drug Policy Research Center, Santa Monica, CA; me; Congressman Julio Bango, Represente National at Parlamento Uruguayo, Montevideo, Uruguay; Sam Kamin, Director, Constitutional Rights & Remedies Program and Professor, Sturm College of Law, University of Denver, Denver, CO;  Dick Reinking, Senior Policy Advisor, Gemeente Utrecht, The Netherlands.  Not pictured:  Moderator Graham Boyd, Counsel to Peter Lewis, Santa Cruz, CA.

This session took place Thursday, October 24, in Denver, at the biennial conference of the Drug Policy Alliance.  I indicated that I thought taxes in CO and WA were maybe unavoidably wrong by having static rates, probably wrong by using a percentage of price base, and nearly certainly wrong to the extent they collected tax later than the choke point (punto de embudo — we had simultaneous interpretation).  I learned a lot from the rest of the panel — different from my days with Congress, when most panels consisted of all tax lawyers, and the occasional relief came from a tax accountant or tax economist.

It turns out that my friend and former teacher  Bill Turnier of UNC-CH Law School (whose Family Wealth Management course I helped him teach) looked at marijuana and taxes a while back.  He wrote “The Pink Panther Meets the Grim Reaper: The Estate Taxation of the Fruits of Crime,” in 72 N.C.L. Rev. 163.  The article deals with the valuation of contraband.

Every day I learn something new.  Or remember something I used to know.