Colorado Suspends Marijuana Tax for One Day on September 16

September 9, 2015

No, Colorado’s marijuana taxes aren’t doing so amazingly that they have too much money. In fact, Colorado’s marijuana taxes brought in only $58 million of the projected $70 million. But a number of complicated refund mechanisms are gearing up because state revenues and spending as a whole overshot estimates. Among these will include a one-day suspension of the state’s 15 percent marijuana excise tax and 10 percent marijuana sales tax on September 16.

Colorado’s Taxpayer Bill of Rights (TABOR), enacted in 1992, requires the state to refund taxpayers if the state’s spending or revenue collections exceed the previous projections. This hasn’t happened since 2001, due to the early 2000s recession, a voter initiative suspending TABOR refunds from 2006 to 2010, and the post-2008 recession. However, it’s looking like flush state revenues will trigger refunds of around $47 per taxpayer, plus make permanent a state Earned Income Tax Credit (EITC), and in 2017 temporarily reduce the state income tax rate from 4.63 percent to 4.5 percent. My colleague Jared Walczak walked through the TABOR calculations a few months ago.

For marijuana taxes, Colorado voters on November 3 will decide by ballot initiative whether the state can keep the $58 million collected or whether it should all be refunded. If kept, the money will be divvied up between public school construction ($40 million); law enforcement, marijuana education, and youth programs ($12 million); and the general fund ($6 million). If refunded, the money will be returned directly to marijuana cultivation facilities ($19.7 million); refunds to all state taxpayers, whether or not they purchased marijuana ($25 million); and temporarily reduced marijuana taxes ($13.3 million) starting January 1, 2016.

TABOR also requires that when refunds are triggered, the tax rate be cut to zero, so policymakers opted to do that for one day. While local sales taxes and the regular 2.9 percent general sales tax will still be collected, retailers are predicting a huge crush of people to take advantage of the one-day tax holiday.

Separately, Colorado legislators voted to cut the marijuana sales tax from 10 percent to 8 percent, effective July 2017. As my colleague Morgan Scarboro noted, the permanent reduction in the sales tax rate could be a step in the right direction to eliminating Colorado’s permanent black market, which has been propped up in part by high taxes.

Was this page helpful to you?

No

Thank you!

The Tax Foundation works hard to provide insightful tax policy analysis. Our work depends on support from members of the public like you. Would you consider contributing to our work?

Contribute to the Tax Foundation

Related Articles