Pubdate: Thu, 25 Apr 2013
Source: New York Times (NY)
Copyright: 2013 The New York Times Company
Contact: http://www.nytimes.com/ref/membercenter/help/lettertoeditor.html
Website: http://www.nytimes.com/
Details: http://www.mapinc.org/media/298
Author: Dan Frosch

STATES PUSH TO GET THE MOST OUT OF MARIJUANA TAXES

DENVER - If marijuana is legalized and properly regulated, its 
proponents have long said, it could generate millions of dollars in 
state tax revenue. But how the drug should be taxed has proved to be 
a thorny question.

In Colorado, where voters approved a measure in November legalizing 
small amounts of marijuana for recreational use, officials have been 
grappling with this issue for months as the state works to forge a 
cohesive regulatory code.

This week, legislators here will consider excise and sales taxes on 
marijuana of up to 30 percent combined. The proposal emerged from a 
task force of health officials, representatives of the state's 
rapidly developing marijuana industry and others that was 
commissioned last year to help develop rules for marijuana.

The goal, task force members and lawmakers say, is to set taxes high 
enough to finance the administration of new laws, but not so high 
that customers are driven back to the black market.

"We should see a financial benefit as a state that can help pay for 
enforcement and other fundamental issues," said Christian Sederberg, 
a Denver lawyer on the panel whose firm helped draft Amendment 64, 
the measure legalizing recreational marijuana. "The other side is 
that if you tax something too high, then you simply crowd out the 
regulated market. We're confident we'll find the right balance."

Under the proposal, the first $40 million collected from a 15 percent 
excise tax would be used to build public schools. Revenue from a 15 
percent sales tax imposed, in addition to the state's 2.9 percent 
sales tax and any local sales tax, would be apportioned to local 
governments and for enforcement.

A legislative hearing on the proposal, which would give lawmakers the 
flexibility to lower the tax rate, is scheduled for Thursday. The tax 
measure is one of several proposals related to marijuana regulation 
being debated this week.

State Representative Jonathan Singer, a Democrat from Longmont and 
the bill's sponsor, said finding the right tax rate was also a matter 
of public safety.

"The big thing is that we want to make sure we're able to put the 
appropriate safeguards in place so that marijuana doesn't end up in 
the hands of kids, criminals or cartels," he said.

Not everyone is certain that a tax is a good idea. Michael Elliott, 
executive director of the Medical Marijuana Industry Group here, said 
he feared that too heavy a tax could make it hard for any marijuana 
business to survive, because Colorado's black market is so entrenched.

Virtually all of the state's businesses that sell medical marijuana, 
which would be exempt from the taxes, will eventually shift over to 
selling the drug for recreational use as well. If taxes are too high, 
Mr. Elliott warned, those businesses could struggle and eventually close.

"Higher taxes on the legal, commercial model will prevent the 
transition to a legitimate market from happening and keep more people 
buying it illegally," he said.

Furthermore, if lawmakers pass the tax proposal, it will still 
require voter approval. Under a state constitutional amendment, tax 
increases are subject to a popular vote.

Meanwhile, projections over how much revenue the taxes might raise vary widely.

In Washington State, where voters in November passed a similar 
measure legalizing small amounts of marijuana for personal use, taxes 
will be levied in three tiers of 25 percent each on producers, 
processors and retailers. Those taxes were laid out in the initiative 
that voters approved, and will result in an effective rate for 
consumers of 44 percent, according to the state's Liquor Control 
Board, which will administer marijuana regulations.

A state study found that revenue from marijuana taxes could range 
from zero dollars, if Washington's marijuana laws are ultimately 
superseded by federal criminal law, to $2 billion over five years if 
a fully formed market develops. "Nobody knows for sure how it will 
work out, but there are people who say they could grow and process 
marijuana at a lower price point than what is currently available 
illegally," said Brian Smith, a spokesman for the board.

Jeffrey Miron, an economics professor at Harvard University and a 
senior fellow at the Cato Institute, a libertarian group, cautioned 
that while both states' approaches seemed reasonable, he doubted the 
taxes would create a substantial windfall.

Dr. Miron, who supports legalization, said that as long as federal 
marijuana laws continued to be unsettled, collecting taxes would be 
challenging. Moreover, he said, there is no way to predict how many 
customers would continue to buy on the black market.

After Prohibition ended in 1933, states levied taxes on alcohol, in 
part because they were desperate for revenue after the Great 
Depression. But that shift, Dr. Miron noted, was undertaken with the 
full support of the federal government.

"It's easy to get a little overexcited that legalizing marijuana is 
going to solve the world's budgetary problems," Dr. Miron said. "But 
the question for the tax revenue part of this will be how much the 
federal government allows these markets to come completely above ground."
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MAP posted-by: Jay Bergstrom