On Wednesday, Sept. 16, 2015, Colorado celebrated a “tax holiday” that suspended the taxes on marijuana for growers and customers alike. It felt like a shopping holiday, too, with customers lining up around the corner at shops in Denver in anticipation of what were to be doorbuster deals.
The tax break was due to Colorado’s convoluted Taxpayer’s Bill of Rights, also known as TABOR, which sets a cap on the amount of revenue that the state can receive from the purchases made by its constituents. In particular, the revenue must be returned when it far exceeds projections. The tax break went into effect on Sept. 16, the first day of the new fiscal year. The break temporarily eliminated the 10 percent tax on recreational purchases which is usually charged in addition to the state and local sales taxes. It also relieved the 15 percent excise tax placed on cannabis cultivators.
Good Chemistry, one of many recreational dispensaries off of Colfax Avenue in Denver, Colorado, was one of the spots that had a host of folks lining up around the corner for the special day. Stephen Spinosa, the company’s vice president of retail, told MJINews, “the one-day state tax holiday was positive for Good Chemistry’s business. The media did an excellent job of spreading the word and making it a holiday. Sales were up. It was a great day for Good Chemistry and the industry overall.”
The holiday brought out a lot of new customers, too. “We saw a brand new set of customers from the one-day state tax holiday,” Spinosa said. The holiday didn’t appear to attract many new out-of-state interest, but rather a surge in local interest. “We see a lot of out of town folks every day, but the influx of customers was primarily from in-state residents and shop-hoppers. Many customers said they visited more than one store,” Spinosa added.
To many in Colorado and beyond, the reasons for the under-expected tax break were unclear. Many, including Colorado Public Radio, have cited TABOR as a quirk in the state’s tax laws. Shoppers were confused, too, but that didn’t stop them from coming out in droves. According to Spinosa, “the challenge over the one-day state tax holiday was confusion around the way it was publicized. The overall perception was that there would be no taxes on cannabis at all on Sept. 16. The reality was that there was no state special marijuana tax, meaning 10% off the overall 22% taxes that also include municipal taxes. The tax-free part could have been better explained to the public.” The holiday cost the state almost $4 million in revenue which speaks to how much earnings the product generates for the state, as well as how much price affects sales.
Coloradans should be prepared for a cram session in the state’s tax policies because they’ll be facing the issue again in November. A proposal on the ballot, if approved by voters, would be allocated in a few possible ways: a $40 million grant toward public schools; $12 million toward a number of initiatives directed at youth, law enforcement and substance abuse; $6 million toward a discretionary fund that lawmakers may use for the state’s overall budget.
If the voters reject the initiative and vote for a refund, then the results would be wildly different. The marijuana sales tax would be temporarily cut from 10 percent to .01 percent from Jan. 1-June 30, 2016. Marijuana grow facilities would receive $19.7 million in refunds for taxes collected over the year, and $25 million would be allocated for a general refund for all taxpayers. In a state with a population of approximately 5.4 million, this would amount to a few dollars per person.
So far in 2015, Colorado has raised nearly $70 million in tax revenue, according to the state’s Marijuana Enforcement Division, including $45,938,721 from the additional sales tax and $25,959,338 from the excise tax on transfers of wholesale marijuana for recreational use. Alcohol-specific taxes only generated approximately $42 million over the same period, with $27,309,606 of this coming from an excise tax collected on spirits, an additional $8,881,349 coming from beer and $5,646,692 coming from wine. These figures do not include regular state and municipal sales taxes. This puts Colorado on track to make more than $120 million in taxes and fees this year, which is more than a 25 percent increase from 2014.
In Washington, where recreational sales have been legalized since last summer, $90 million has already been collected from marijuana-specific excise taxes. These figures are hard to ignore for the states that have marijuana initiatives on their upcoming ballots.