Colorado Recreational Marijuana Industry Sales Tax Vote Looms

Apparently getting the sale of recreational marijuana in Colorado legalized was the easy part.  Determining how much the industry should pay in sales tax is proving to be more difficult, as it has made friends of former opponents and vice-versa.

At the end of 2012, Colorado residents voted to legalize the sale of marijuana for recreational purposes.  This November, Colorado residents will vote on how much if any tax the state should collect on the sale of recreational marijuana.

Marijuana Sales Tax Makes Strange Bedfellows

Just as the decision on whether to legalize the sale of recreational marijuana drew sharp lines between supporters and opponents, the vote on taxation for the industry is doing likewise.  However, many of those who were on opposite sides of the legalization topic now find they are on the same side.

Groups and individuals who were against the legalized sale of marijuana, such as Colorado Attorney General John Suthers, are now in lock-step with Brian Vicente, one of the chief supporters of marijuana legalization, in support of sales tax for the marijuana industry.

The measure on the ballot for voters to consider would levy a 10 percent sales tax and a 15 percent excise tax on recreational marijuana sales.  The state plans to use funds from the excise tax to pay for schools, whereas funds from the sales tax will be used to police sellers to ensure they comply with industry regulations.

Pros and Cons of the Proposed Tax Measure

Supports of taxation point out that the monies generated are necessary to ensure stores meets the standards in place related to the growth and sale of marijuana, especially since the federal government has indicated Colorado may sell recreational marijuana only so long as they enforce appropriate rules.

“We really think we need to keep the promise to Colorado voters,” noted Vicente, referring to the commitment from many supporters for legalized marijuana sales that such sales would be done in a regulated manner.

Opponents of the excise and sales tax measure on the ballot are not entirely against taxation on marijuana sales but rather the amount of tax.

“It’s not that we oppose taxation and regulation in general, it’s that we think the rates here are excessive,” noted Sean McAllister.  McAllister is a board member with Colorado branch of NORML, the National Organization for the Reform of Marijuana Laws.

The state’s Marijuana Enforcement Division has an annual budget of $6 million.  Experts believe enforcement of the industry’s marijuana regulations will require an additional $1 million from the sales tax.  However, the proposed 10 percent sales tax will generate far more than that amount of revenue.

“You could get that done with half the tax rate,” McAllister added.

Supporters of the tax measures understand the estimates from the experts.  However, they are also quick to point out that this is a new industry with no real-world figures available from anywhere in the nation.  In addition, researchers with Colorado State University published findings indicating the planning funding levels of marijuana sale enforcement were not sufficient and noting the problems related to lack of regulation.

Therefore, pro-tax supporters believe having additional funding available in the event expenses exceed estimates is simply prudent planning.

In addition to the measure votes throughout the state will consider, residents within the Denver city limits are voting on whether to pass a 3.5 percent sales tax on recreational marijuana sales.

Colorado was the first state in the nation to legalize the sale of recreational marijuana.  Washington passed a similar measure to legalize recreational marijuana sales earlier this year.

by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.