Marijuana Taxes — Present and Future Traps
Tax Notes Volume 83, Number 4, January 23, 2017
11 Pages Posted: 22 Feb 2017 Last revised: 15 Aug 2017
Date Written: January 23, 2017
Voters liked state marijuana taxes enough to propel recreational marijuana legalization to victory in eight states. Understandably, though, early taxes may suffer from a feeble tax base, inflexibility, and carve-outs. Essential enforcement can’t be guaranteed. And a tax that sputters along today could conk out if an interstate race to the bottom or competing federal taxes materialize.
This article examines:
• the facts on the ground for recreational marijuana taxes;
• inherent weaknesses in early taxes;
• three problems voters may overlook when legalizing marijuana;
• the specifics of 12 state legalization initiatives; and
• three potential post-enactment problems.
It’s unclear that marijuana taxes will stand the test of time. Legal commerce itself could fade away with a new administration. If for-profit marijuana commerce endures, some kind of marijuana taxes will too. The tax base march of progress is likely to continue. And the tax burden can go up too. The soundness of state marijuana taxes will depend on the ability of legislatures to dodge special interests and to make midcourse corrections. But state constitutions make some initiative-passed laws inherently inflexible. Like initiatives, legislation faces threats from medical tax breaks and reliance on flimsy price-based taxes.
Post-enactment, any tax scheme faces the threat of inadequate enforcement. Interstate commerce will threaten state producer taxes, and federal tax dominance could vitiate even the soundest state tax. Voters like marijuana revenue for government. But state marijuana tax laws are likely to remain works in progress for a long time.
An early January ranking of the eight recreational states' tax structures was revised significantly in August 2017 in light of legislative changes.
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