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1 Joseph Henchman & Morgan Scarboro, Marijuana Legalization and Taxes: Lessons for Other States from Colorado and Washington 1 (2016)

handle is hein.taxfoundation/mjletaxcw0001 and id is 1 raw text is: FOUNDATION SPECIAL REPORT No. 231 May 2016 The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and local levels. We are a 501(c)(3) non-profit organization. @2016 Tax Foundation Distributed under Creative Commons CC-BY-NC 4.0 Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoLindation.org Marijuana Legalization and Taxes: Lessons for Other States from Colorado and Washington By Joseph Henchman Morgan Scarboro Vice President, Analyst Legal & State Projects Key Findings * Marijuana tax collections in Colorado and Washington have exceeded initial estimates, and a nationwide legalization-and-tax regime could see states raise billions of dollars per year in marijuana tax revenue. * Colorado, Washington, and Oregon have all taken steps to reduce their marijuana tax rates, with Alaska considering it, after initial rates of 30 percent or more did not reduce the black market sufficiently. More recent ballot initiative proposals across the country propose rates between 10 and 25 percent. * Tax rates on final retail sales have proven the most workable form of taxation. Other forms of taxation that have been proposed, such as taxing marijuana flowers at a certain dollar amount, taxing at the processor or producer level rather than the retail level, or taxing products by their level of THC, have faced practical implementation difficulties. * Medical marijuana is usually more loosely regulated and less taxed than recreational marijuana. In Washington, moving non-medical sales to the retail market has proven difficult given the enormous differentials in tax rates and regulatory structure, and officials there wish the two systems had been tackled simultaneously. * While the revenue can be in the tens or even hundreds of millions of dollars, it takes a lead time to develop. Revenues started out slowly in Colorado and Washington, as consumers became familiar with the new system and after state and local authorities spent time and money setting up new frameworks and regulatory infrastructure. * Significant attention must be given to health, agricultural, zoning, local enforcement, and criminal penalty issues. These important issues have generally been unaddressed in ballot initiatives and left for resolution in the implementation process. The authors would like to thank the numerous Colorado and Washington legislators and officials who shared their time and thoughts on the marijuana legalization and taxation experience in their states.

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