Tax Foundation: Colorado’s pot taxes + TABOR = headaches and a holiday

A new study by the Washington, D.C. Tax Foundation think tank found, among other things, that Colorado’s Taxpayer’s Bill of Rights amendment — or TABOR — caused “implementation headaches” for legalized marijuana markets.

The study, titled “Marijuana Legalization and Taxes: Lessons for Other States from Colorado and Washington,” found that collecting taxes on legal weed in both states has exceeded initial estimates, “and a nationwide legalization-and-tax regime could see states raise billions of dollars per year in marijuana tax revenue.”

Another finding is that medical marijuana is usually more “loosely regulated and less taxed” than recreational pot. The study comes with a map showing how pot is taxed in each state where it’s legal.

When it comes to Colorado, the study found marijuana is taxed here at about 29 percent. What’s that mean to the average dope smoker? It means all told, a $30 eighth of weed will come with an additional $8.59 in taxes. The Tax Foundation compared that tax to other vice taxes in Colorado and found the tax on cigarettes is about 31 percent and about 8 percent on beer.

“The 10 percent state marijuana tax will drop to 8 percent beginning in July 2017, after concerns that the rate was too high to wipe out the black market,” reads a portion of the study.

And what’s a tax study without a section dedicated to how people are avoiding taxes?

From the report:

One way people have been avoiding their tax liability is through marijuana delivery services. These services, often advertised on Craigslist and similar posting websites, do not pay taxes as their products are allegedly “not for sale.” Instead, the delivery service asks for specific “donations” depending on the amount of marijuana the consumer purchases. One Denver advertisement, for example, asks for a $200 donation for ounce, 21 percent cheaper than the $243 average price in legal retail stores. Such subterfuge would be unlikely to pass muster before a judge or tax collector.

Colorado has a constitutional tax amendment that other states with legalized and taxed marijuana don’t have: TABOR

According to the Tax Foundation’s study, “harmonizing marijuana taxes” with TABOR “has resulted in implementation headaches.” Headaches maybe, but also a holiday.

Colorado’s 1992 Taxpayer’s Bill of Rights amendment requires state government to issue refunds to taxpayers when and if state spending or revenue collections end up being more than government forecasts predict.

“Flush state revenues and higher state spending in 2015 triggered this provision for the first time since 2001, which required the marijuana tax (as a newly enacted tax) be reset to zero percent, with all amounts collected be refunded,” the study states. “To prevent this, legislators asked voters to approve a measure that overrides the repeal and refund requirements, permitting the state to keep the $66 million in marijuana revenue collected up to that point.”

Voters last year approved that ballot measure, which was called Proposition BB, by nearly 70 percent. That meant taxes on legalized weed in Colorado had to be repealed — at least for “some length of time.”

So lawmakers in Colorado decided to hold off on the 15 percent excise pot tax and a 10 percent pot sales tax, while keeping state and local taxes, for just one day — Sept. 16, 2015 — which became known as Colorado’s marijuana tax holiday.

But, says the Tax Foundation: “The one-day holiday did not seem to boost sales for the month as a whole.”

Founded in 1937, the Tax Foundation is a nonprofit that gets funding from private donations, corporations and foundations.

[Photo credit: Brett Levin via Creative Commons in Flickr]