Tax Foundation: An Update on Marijuana Taxes
New report offers overview of Colorado and Washington’s experiences with taxing marijuana
Washington, DC (Aug 25, 2014)—The debate over marijuana legalization is not going away. DC, Alaska, and Oregon will vote on legalization measures in November and 13 other states will likely push for similar ballot initiatives and legislative efforts in the near future. As this progress unfolds, it is important to keep track of the new approaches and proposals to taxing marijuana. Currently, two states have legalized marijuana sales and have put new tax structures into place: Washington and Colorado. A new report from the nonpartisan Tax Foundation examines each state’s experience thus far.
Each state utilizes a different set of tools for collecting revenue from marijuana sales.
Colorado collects tax revenue from a 15 percent excise based tax on the average wholesale market rate; a 10 percent state tax on retail marijuana sales; a state sales tax of 2.9 percent; varied local sales taxes; and local marijuana taxes such as a 3.5 percent tax in Denver.
On the other hand, Washington State collects tax revenue from a 25 percent tax on producer sales to processors; a 25 percent tax on processor sales to retailers; a 25 percent tax on retailer sales to customers; a state Business & Occupation (B&O) gross receipts tax; a state sales tax of 6.5 percent; and varied local sales taxes. The total effective tax rate to be about 44 percent.
Despite the elaborate network of revenue sources, tax collections in Colorado have fallen short of projected revenue estimates because of incorrect projections about the switch from lower-taxed medical marijuana to higher-taxed retail marijuana by consumers. Collections in Washington, however, have fallen within the wide range of projected revenue estimates.
As the issue continues to expand, it is important that states with possible upcoming ballot initiatives take note of effective and ineffective methods of taxing marijuana, lest they succumb to the latter.
Full report: Taxing Marijuana: The Washington and Colorado Experience
