Colorado voters will face two options this November: either allow the state government to keep revenue from recreational marijuana, or reclaim the 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. dollars via several types of tax refundA tax refund is a reimbursement to taxpayers who have overpaid their taxes, often due to having employers withhold too much from paychecks. The U.S. Treasury estimates that nearly three-fourths of taxpayers are over-withheld, resulting in a tax refund for millions. Overpaying taxes can be viewed as an interest-free loan to the government. On the other hand, approximately one-fifth of taxpayers underwithhold; this can occur if a person works multiple jobs and does not appropriately adjust their W-4 to account for additional income, or if spousal income is not appropriately accounted for on W-4s. s. The Taxpayer Bill of Rights (TABOR), a well-known amendment to the Colorado Constitution, requires the state to refund taxpayers if the state’s spending or revenue collections exceed the previous projections.
The situation is peculiar in that the marijuana revenue itself did not trigger the refund. Actually, revenue from recreational marijuana in Colorado has been disappointing compared to state projections; however, Colorado’s total state spending for fiscal year 2015 will likely be $267 million higher than the 2013 estimate, which is the variable that triggered the refunds.
In order to dodge the refund requirement, the state legislature introduced HB 15-1367 on April 20, a bill that creates a ballot initiative to allow Colorado voters to approve of the state legislature keeping the $58 million in marijuana revenue. It was signed into law by Governor Hickenlooper (D) last Thursday.
This vote will likely look familiar to Colorado voters as they have already approved Proposition AA, which outlines how marijuana taxes would be spent. If the ballot initiative passes, the revenues will be used for the voter-approved projects: $40 million to the construction and repair of public schools, $12 million to the Marijuana Tax Cash Fund (funding to oversee enforcement, prevention programs, public health initiatives, and costs of legalization), and the remaining $6 million to the state’s general fund.
If the initiative does not pass, the state will be responsible for a refund equivalent to up to the full $58 million in marijuana revenues. Under the state’s plan, taxpayers (regardless if they have ever purchased marijuana) would receive a credit of $25 million via the state’s tiered refund system, $19.7 million would be returned to cultivators who pay the 15 percent wholesale 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. rate, and on January 1, 2016, the government will reduce the 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. rate on marijuana from 10 percent to 0.1 percent until the reduction in collections equals $13.3 million or June 30, whichever occurs first. Additionally, to comply with TABOR’s requirements, the special sales tax will expire for one day on September 16, 2015, then return to its 10 percent rate the following day.
Regardless of whether the initiative passes, the bill will also permanently lower the sales tax on marijuana from 10 percent to 8 percent beginning July 2017. The permanent reduction in the sales tax rate could be a step in the right direction to eliminating Colorado’s persistent black market, which has been propped up in part by high taxes.
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