Colorado Voters Approve Hefty Marijuana Taxes by Big Margins


Jacob Sullum

Yesterday Colorado voters overwhelmingly approved Proposition AA, which authorizes a 15 percent excise tax and a special sales tax of up to 15 percent (initially set at 10 percent) on marijuana products sold by the state-licensed stores that are scheduled to open next year. The margin, 65 percent to 35 percent, was almost exactly the same as the margin by which voters rejected an income tax hike aimed at boosting funding for public schools. Most of the annual revenue from the marijuana excise tax—the first $40 million—likewise is earmarked for a school construction fund. Since marijuana consumers currently are a relatively small minority (around 12 percent of the population), these results are not terribly surprising. Given the choice, voters will always prefer that other people pick up the tab for their stuff.

All of the proposed local taxes on marijuana also passed by big margins. Denver voters authorized an additional sales tax by a margin of  more than 2 to 1 (69 percent to 31 percent). The tax is initially set at 3.5 percent, but the city council has leeway to raise it as high as 15 percent. By a vote of 67 percent to 33 percent, Boulder voters approved a 3.5 percent sales tax that can be raised as high as 10 percent. Littleton voters approved a 3 percent sales tax by a vote of 64 percent to 36 percent. And it looks like Pueblo County will have its own 3.5 percent marijuana tax as well.

The upshot is that marijuana will be one of the most heavily taxed consumer products in Colorado, taxed at a much higher rate than alcohol even without taking local levies into account. That situation is hard to reconcile with Amendment 64's aim of taxing marijuana "in a manner similar to alcohol," and it surely makes no sense in light of the two products' relative hazards, which were a major theme of the legalization campaign. If legislators take full advantage of their new tax authority, marijuana in Denver, the center of the retail cannabis industry, will be hit by a 15 percent excise tax plus sales taxes totaling 38 percent (including standard and special state and local taxes). With taxes that high, the state-licensed outlets may have trouble competing with the black market and with homegrown marijuana. (Coloradans are allowed to grow up to six plants at home and share the produce, one ounce at a time, "without remuneration.") Legislators may find that if they set taxes too high, the result will be less revenue rather than more.

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  1. Would you rather they go back to joining the Federal government in throwing you in jail for it? Some people just aren’t grateful for anything.

    And none of that tax revenue better go to municipalities who still ban marijuana use. That’s bullshit.

    1. Pretty much how I feel. Yes, taxes suck, but it’s better than time in jail.

  2. This will be challenged in court. If the tax structure were the same as alcohol, but the rates higher, I could see a court saying that’s “in a manner similar to alcohol”, just higher rates. But does alcohol have a special sales tax, and local sales taxes at the town and the county level. If not, then it’s really not similar to alcohol.

    1. I imagine that since it was approved at the ballot box any conflict with a previous ballot initiative would be moot.

      1. AMendment 64 is an amendment to the Colorado constitution. so I would expect that to carry more weight.

  3. I’m actually pretty proud of CO voters. Amendment 66 got pounded, the anti-union school board slates in Douglas and Jefferson (that was a big surprise) counties, and not giving the state an excuse to walk back MJ legalization. Because I guarantee you that if AA hadn’t passed, every official from the Hick on down would be all ‘sorry bros, but we just can’t see any way of not beating the shit out of you for MJ possession if we can’t make you hurt for it some other way.”

  4. Legislators may find that if they set taxes too high, the result will be less revenue rather than more.

    The tax is already too high. A 30% tax on anything is ridiculous. What are they trying to do, ensure that a thriving black market remains? No, they are just up to their usual money grabbing.

    It’s a start, an ugly one, but at least they will never be able to put the cat back into the bag now. It’s legal and will remain so, and eventually things will settle down and it will be more like alcohol. Otherwise they will have a a competing black market and a lot of people who would otherwise purchase the stuff will instead get themselves a couple of grow lights and grow their 6 plants. The legal market will never survive with a 30% tax.

    1. What are they trying to do, ensure that a thriving black market remains?

      Yep. Then they can say that legalization didn’t work.

      1. I don’t think they are that smart, sarc, I think they are just greedy and stupid.

      2. There is that, too.

        See also the health insurance exchange in New Hampshire. Only one company is participating. See how the free market isn’t working ?

        1. President ‘you can keep your (fill in the blank)’, said that the ACA ensures competition. So it must be true.

  5. Legislators may find that if they set taxes too high, the result will be less revenue rather than more.

    What do you mean? *rising intonation* These aren’t static equations that always move the same way? You can’t just raise prices to infinity and expect people to keep their same buying habits? People will look for better deals, possibly in the black market or home grown, substitute products or just forego their purchases all together? Inconceivable!

  6. They won’t be going to the black market because of a tax, but if it’s worth the price savings relative to quality. Black market drugs have their markups too, as well as their quality control issues. I guess I’m asking what does the tax make an ounce of decent shit cost?

    1. The tax makes an ounce of decent shit cost 30% more than the same ounce bounced to you straight from the grower. So figure about 100 dollars more per ounce to buy it tax compliant.

      1. In Tony world, all government ideas work because they are the ultimate and supreme wisdom handed down to us from people who are somehow endowed with magical wisdom just by virtue of being in public office. Math is irrelevant here, it’s just magic all the way down in rainbow and free ponies universe.

        1. It’s like he doesn’t realize that the same product be produced for both the taxed and tax-free markets.

          1. Without the FDA standing over their shoulder, no one can possibly grow a quality herb that is not contaminated with every toxic substance known to man. Why do you think there have been so many MJ related fatalities over the last few decades? Oh… yeah, that’s right, being shot by the cops doesn’t count…

      2. That’s a bit high. An ounce in the dispensary is around 180-200 right now. I expect the base price to drop out a little more in January. The tax is ridiculously high and will keep people in business on the black market, but at least that market is a lot grayer now. This cat is unlikely to go back in the bag.

    2. Just like no one in New York City buys black market cigarettes because of the high taxes.…..-new-york/

    3. They won’t be going to the black market because of a tax,

      Because there’s no black market in cigarettes.

      but if it’s worth the price savings relative to quality.

      The very highest quality is available on the black market, and unlike powder drugs, you can do a pretty good visual evaluation of pot.

    4. The quality control and markup issues are a lot smaller when it’s an otherwise legal product being diverted to black market channels (closer to a gray market), than a simply illegal to sell, manufacture, or possess at all item.

      Add the regulatory bias towards small growers, and the tax evasion should be on the nature with cigarettes and roll your own tobacco.

    5. The cig taxes in NYC end up being roughly a 50% tax (something like $4.85 combined city and state tax on something that’s just under $10 without the tax, roughly $14.50 with tax.)

      Good estimates show that over half the cigarettes sold in NYC are black market. Admittedly, it’s a bit different because they can buy in one state and ship to another, but I’d expect a similar problem.

  7. Note that, unsurprisingly, Grover Norquist opposed AA for its too high marijuana taxes. He also opposed Prop 66, which failed by a lot.

  8. “Let’s put a giant tax on stuff I’ll never buy. Presto! Free money!”

    Serious question: Are the smokers of home-grown supposed to remit the tax at “market value”?

    You know, like everybody who buys a refrigerator over the state line in the low-tax state next door promptly writes a check for the appropriate amount and sends it in to his state tax man?

    1. The market won’t work with the tax that high. So what will happen is that the CO cronycrats will try every bad fix they can dream up, all of which will fail, and eventually the tax will have to go back to something more in line with the alcohol tax. Your geniuses in government at work there wasting money and fucking things up, as usual.

    2. Serious speculation: I wouldn’t be surprised if that’s what they expect.

      I like how Maine handles it. On your income tax form, there’s a place at the end to pay the “use” tax you owe on out of state purchaes. Didn’t keep track ? just apply this percentage to your AGI to estimate. Since I could literally see New Hamphire from my house, I always paid. How hard would it be for the state to figure out I had bought all my appliances in no tax NH. Not worth the risk, so you just pay

      1. Every state does this with “use tax” for durable goods brought back to the home state. The vast, vast majority of people don’t pay, and nothing happens to them.

        1. Yeah, especially those of us with no state income tax. I don’t even know how to report it.

        2. It’s based upon sales tax.

          For example if your state has a 7% sales tax, and you purchase something in a state with a 5% sales tax and bring it home, your home state wants you to pay the difference. In this case 2%.

          If your state has no sales tax, then it has no use tax.

          1. True, every state with a sales tax does this, I should have said.

  9. it surely makes no sense in light of the two products’ relative hazards,

    Whatever happened to levying taxes strictly to raise revenue?

    If taxing is to discourage hazardous activity then experimental aircraft hobbyists would pay some of the highest taxes.

  10. So, it will be cheaper to buy it on one of those Tor sites like Sheep Marketplace or Black Market Reloaded?

    1. It will be cheaper to find someone and have an under the table cash transaction for some of his “home grown.”

  11. I’m gonna ask this again here, as I’m still a bit fuzzy on the details. I’m not trying to start a shit fight, and I don’t consider myself to have a dog in the fight. Nor am I suggesting it’s been an issue ’round these parts…

    I’ve seen more than a few people claiming to be libertarians making the “legalize it ‘n’ tax it” argument for pot, and it’s always seemed to be in conflict with less government. So, are they cosmotarians (of the No True Scotsman type), or is it more likely a duplicity on their part to just get it legalized (throwing the on-the-fence types a bone)? Did I miss something in those arguments?

    Anyone wanna take a shot at this?

    1. Paying a tax is better than a prison sentence and criminal record. Ergo it’s an improvement. Ergo if that’s the only way to legalize the stuff, it’s a step forward.

      1. Maybe so. However, don’t you think that caveat ought to be included in the argument?

        Plus, isn’t it better overall to just advocate that it be legal, without emphasizing the taxation part? It seems to me that making that a part of the deal just entices the other side to tax it into oblivion.

        1. My objection is to making people into criminals because of this plant. This is the ultimate Blue Law, IMHO.

          In principle, I accept the idea of taxes on luxuries and/or products which are unhealthy (heresy!). However, I would like taxes on food and other necessaries to be rolled back or abolished before any luxury tax gets considered. So until the tax-and-reulate people start getting rid of food taxes and income taxes, I won’t like extra taxes on MJ.

          But if a political polling firm (for instances) says that the way to free people from prison and criminal records because of a plant is to legalize and slap high taxes on said plant, then I’d go along with it.

        2. I think pretty much everyone here would be happy with it being legal and untaxed.

          But as Edward said, we were pretty much aware that would be a non-starter, politically.

        3. I think that there’s a fine argument for saying that it ought to be taxed the same as everything else. Even okay to say taxed the same as alcohol or tobacco.

          Beyond a certain point, I might vote against a legalization bill, and I’d certainly vote to lower the taxes later. But legal with a tax is still a lot better than totally illegal.

          Note that legal with a tax also makes it easier to grow your own or get it from someone evading the taxes, than a situation where the good itself is presumed illegal.

  12. I think tax evasion might (if people are sane) exert a downward pressure on taxes, if legislators learn that the higher the taxes, the more stuff goes into the untaxed black market.

    Not the qualifications.

    1. note

  13. It’s odd that you suddenly remembered it was supposed to be regulated like alcohol. Because for a while there, every column here was whining about the heavy regulatory burden CO was going to put on “legal” marijuana, but, since alcohol is heavily regulated, that was consonant with the goal of treating pot like alcohol. Not a word was said about that, except by me, in the comments. But now, whoa, you gotta tax it like alcohol!

    How about, and here’s the crazy idea, we stop making either heavily regulated and taxed, and just enjoy ourselves? How about we don’t purchase pot “legalization” at the cost of alcohol prohibition, too, because if you start talking about relative health effects (alcohol drinks itself, don’t you know!), that’s the destination.

    Screw that. Support liberty.

    1. I haven’t particularly noticed that Bloomberg banning large sodas or raising the age limit for cigarettes has been accompanied with him being kinder to weed. I think the “public health” people have that destination in mind anyway.

      Legal with a moderate tax is more liberty than illegal. I’d prefer the tax be lower, but supporting liberty doesn’t mean making the perfect the enemy of the good.

  14. Keeping the black market alive!

  15. This is a continued attempt to make it not work so those against will proclaim it’s failure. “We tried but it failed, those saying it would be a success were incorrect.”

  16. Are we really looking at a 38% plus 15% tax on cannabis that eould be a total tax rate of 53%? Would it then follow that if a half ounce had a base, before tax, price of $100, would the final cost to the consumer be $153? That is a very high tax rate, but still a much better option than fines, jail time and a criminal

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