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25 Percent Taxes on Pot in Colorado?

1 min readBy: Benjamin J. Gehlhausen, Scott Drenkard

Voters in Colorado are once again considering marijuana legislation at the polls during a November 5th ballot measure election as they decide on taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. rates applied to marijuana, which was legalized in the state last year. Proposition AA, which Governor Hickenlooper signed late this May, asks voters to approve a 15 percent excise tax and a 10 percent sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. on all retail marijuana purchases within the state.

Colorado and Washington are the first states to legalize marijuana for recreational use, which leaves regulators and analysts with little prior market information to make crucial tax decisions from. Over-taxing the substance could suppress demand and revenue for the state, creating potential problems with plans to build new schools from the first $40 million left over from expensive regulatory costs. But perhaps more troubling is the possibility of taxing the product so punitively that marijuana still trades on the black market because legal avenues are too costly. On the other hand, under-taxing would fail to shore up Colorado’s existing problems with meeting regulatory costs of the Medical Marijuana Enforcement Division that is slated to shoulder the additional responsibility of effecting recreational use regulations.

One of the estimates we have from the Colorado Futures Center estimates that the adult recreational market for marijuana will be $605.7 million and taxes are expected to bring in $130.1 million in the first fiscal year. We’ll be curious to see the actual numbers once the market is in full swing.

More from us on marijuana taxes in Colorado.

Also, check out this rather interesting protest concept against higher marijuana taxes in light of the recent flooding in Colorado.

UPDATE: Voters on November 5th, 2013 approved these tax rates, 65 to 35 percent.

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