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Colorado Suspends Marijuana Tax for One Day on September 16

2 min readBy: Joseph Bishop-Henchman

No, Colorado’s marijuana 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. es 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 taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. and 10 percent marijuana 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 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 recessionA recession is a significant and sustained decline in the economy. Typically, a recession lasts longer than six months, but recovery from a recession can take a few years. , 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 CreditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. (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.