Massachusetts voters approved recreational marijuana in November 2016 and now lawmakers in the state, regardless of their support or opposition for recreational marijuana, are taking up the challenge of creating a new taxing and regulatory framework for the market.
The ballot measure, Question 4, outlined the taxation of recreational marijuana: the state 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 of 6.25 percent, a state 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. of 3.75 percent, and localities would be permitted to levy a separate 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. of up to 2 percent. Altogether, marijuana would have faced a maximum tax rate of 12 percent, the lowest of the eight states that currently tax recreational marijuana.
However, policymakers, concerned that the original tax rate was too low, have revised the tax rates so they now total a maximum rate of 20 percent. The new law still subjects recreational marijuana to the state sales tax rate of 6.25 percent, but increases the state excise tax rate to 10.75 percent and permits localities to levy a rate of up to 3 percent. Governor Baker (R) signed the bill July 28th.
Even at a rate of 20 percent, Massachusetts will levy a relatively low rate on recreational marijuana compared to other states.
| *Maine is currently considering increasing the tax rate to 20 percent. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| State | Tax Rate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Alaska | $50 per ounce of marijuana (levied on cultivators) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| California | 15 percent on gross receipts of retail sales Tax on cultivators: $9.25/ounce of flowers $2.75/ounce of leaves |
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| Colorado | 15 percent sales tax 15 percent excise tax on average market rate of retail marijuana (imposed on first sale or transfer from cultivation facility to store, manufacturing facility, or other cultivation facility) (transfers among cultivation facilities will be exempt from tax beginning August 7th) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Maine* | 10 percent sales tax | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Massachusetts | 10.75 percent | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Nevada | 15 percent excise tax on first wholesale sale and 10 percent retail excise tax | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Oregon | 17 percent | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Washington | 37 percent excise tax | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Despite the changes to the tax treatment, medical marijuana in Massachusetts will remain untaxed. This has the potential to create problems for the state as it might keep some recreational marijuana in the gray market. For instance, people with medical cards might resell their untaxed marijuana to those without medical cards.
Currently, one in five Americans live in a state with legal recreational marijuana, and legalization approval ratings have reached record highs. With eight states taxing marijuana under different structures and with rates ranging from 10 percent to 37 percent, best practices regarding taxation and regulation should become clear. States should be prepared to implement a system that is both effective and protects consumers.
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