Taxing & Zapping Marijuana: Blockchain Compliance in the Trump Administration

44 Pages Posted: 15 Mar 2018 Last revised: 28 Mar 2018

Richard Thompson Ainsworth

NYU - Graduate Tax Program; Boston University - School of Law

Brendan Magauran

Independent

Date Written: March 15, 2018

Abstract

On January 4, 2018, the Trump Administration through Attorney General Sessions rescinded an Obama-era policy that discouraged federal prosecutors from bringing charges in all but the most serious marijuana cases under the federal Controlled Substances Act, as well as under the Bank Secrecy Act. Federal law is at odds with state law in the majority of states on the legalization and subsequent state taxation of marijuana. Twenty-eight states and the District of Columbia have at least partially legalized marijuana. Eight of these states have legalized both medicinal and recreational use. With limited exceptions, legalized sales of marijuana are taxed.

Aside from “compassionate use” of medicinal marijuana, the States have seen real business development and job creation opportunities by legalizing the marijuana trade – estimates of 250,000 new jobs by 2020 are common.

State marijuana revenue measures are not harmonized today. Both the tax rates and the commercial stages at which marijuana transactions are taxed diverge widely. Rates range from zero for medicinal use (in Delaware, DC, Maine, Massachusetts, New Hampshire, New Mexico, North Dakota, and Oregon) to roughly 47% (for recreational marijuana, slightly less for medicinal) in Washington. For the most part, state marijuana taxes cascade with excise taxes appearing in the retail sales tax base.

This paper proposes to analyze state marijuana enforcement and taxation through the lens of European value added taxes (VAT). There is a closer harmony between the EU and the US in this area than might be expected. EU VAT proposals for tax harmonization and enforcement, and applies them to the US. The proposals are technology-intensive. They integrate well with the digital track and trace systems employed by US States to control legalized marijuana. The first proposal is to place the central portion of the marijuana supply chain on a private blockchain that is shared among the states. Transactions in marijuana will be preserved in real-time (locally and centrally). Data will be shared among State authorities to aid enforcement, and tax collection.

The second proposal is for a limited-purpose cryptotaxcurrency. This would be a crypto-token like VATCoin that is digitally minted by the government. For example, CALCoin. CALCoin would be the only currency allowed for marijuana-related purchases within California. Frauds related to excessive “home grown” marijuana, and the use of Dark Cloud-based Zappers in retail dispensaries are also considered.

Keywords: Blockchain, HyperLedger Fabric, Private Blockchain, Public Blockchain, Legalized Marijuana, Medical Marijuana, Recreational Marijuana, Bank Secrecy Act, Controlled Substances Act, Sales Tax, Excise Tax, Zapper, Dark Cloud, VAT, Sales Suppression, Jef

JEL Classification: K10, K19, K39

Suggested Citation

Ainsworth, Richard Thompson and Magauran, Brendan, Taxing & Zapping Marijuana: Blockchain Compliance in the Trump Administration (March 15, 2018). Boston Univ. School of Law, Law and Economics Research Paper No. 18-03. Available at SSRN: https://ssrn.com/abstract=3141203 or http://dx.doi.org/10.2139/ssrn.3141203

Richard Thompson Ainsworth (Contact Author)

NYU - Graduate Tax Program ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Boston University - School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States

Brendan Magauran

Independent ( email )

No Address Available

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