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.