Massachusetts Increases Marijuana Tax Rate

August 1, 2017

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 tax rate of 6.25 percent, a state excise tax of 3.75 percent, and localities would be permitted to levy a separate tax 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
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
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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