56 Pages Posted: 25 Jan 2011 Last revised: 13 Jun 2012
Date Written: January 28, 2011
Any scheme to legalize marijuana that has a chance of enactment will tax the stuff. But how? Like tobacco, based on weight? Like alcohol, by measuring the intoxicating chemical? Like shoes or hotel rooms, as a percentage of price? Or, as one city in California taxes medical marijuana, by counting plants or square footage of cultivated area? What about license fees, or a state monopoly? This article looks at those questions.
And it looks more deeply: How high should the tax rate be, and how might governments adjust it to win the inevitable price war against bootleggers? How might a state allocate revenue when localities opt into or out of legalization? Where in the supply chain should governments collect tax? How could they fight non-tax-paid contraband? Should there be tax breaks for hemp, home grown, small growers, environmentally friendly operations, or medical marijuana?
Early answers to some of these questions are already coming from 16 states and 11 California cities that are collecting revenue from medical marijuana. If recreational use is legalized, the answers might change. As a completely new source of revenue opens up, this article aims to prepare the reader for a time of new ideas (well, new applications of old ideas) and experimentation.
Keywords: Tax, excise, marijuana, alcohol, tobacco, monopoly
JEL Classification: A13, D40, E61
Suggested Citation: Suggested Citation
Oglesby, Pat, Laws To Tax Marijuana (How To Tax It) (January 28, 2011). State Tax Notes, Vol. 59, No. 4, 2011. Available at SSRN: https://ssrn.com/abstract=1741735