Legislature approves historic marijuana sales and excise taxes in ColoradoBY DAVID KALL TAX AND BENEFITS CHALLENGES MAY 28, 2013
On May 8, 2013, the Colorado Legislature made history by becoming the first state to pass two bills regulating the manufacture, sale, distribution, and use of recreational marijuana. While both bills were written by a bipartisan committee and received support from both parties in the Senate, the bills were approved along party lines in the House (37 Democrats in favor and 28 Republicans opposed). It is expected that the bills will be approved by Governor John Hickenlooper, a first-term Democrat.
Voter approval of sales and excise taxes
One of these bills, House Bill 1318, imposes certain sales and excise taxes on the sale of recreational marijuana (Tax Bill). Once the Tax Bill is approved by the governor, it will need to be approved by Colorado voters in November. If this Tax Bill is not approved by Colorado voters, the state will be required to use general fund money to pay the costs necessary to enforce the new marijuana laws.
Prior to this Tax Bill’s passage by the legislature, certain lawmakers were so concerned about the cost to regulate this industry that they proposed a resolution for the November ballot that would have asked voters if the sale of recreational marijuana should be suspended if the sales and excise taxes were not approved. Marijuana industry representatives were able to convince lawmakers to remove such ballot resolution prior to the legislature’s passage of the Tax Bill.
Sales and excise taxes
Beginning on January 1, 2014, the bill would impose a 10 percent sales tax on the sale of retail marijuana products sold to consumers by a retail marijuana store. In addition, lawmakers would have the ability to decrease or increase this sales tax, provided the sales tax rate does not exceed 15 percent. This sales tax is in addition to the 2.9 percent state sales tax and any local government sales taxes that are currently imposed on the sale of property.
Also, beginning on January 1, 2014, the bill would impose an excise tax on the first sale or transfer of unprocessed retail marijuana by a retail marijuana cultivation facility, at a rate of 15 percent of the average market rate of unprocessed retail marijuana. Similar to the marijuana retail sales tax, this excise tax may be decreased or increased by lawmakers, provided the excise tax rate does not exceed 15 percent.
Use of revenues collected from sales and excise taxes
According to the Tax Bill, most of the revenues collected from the sales and excise taxes will be deposited in the marijuana cash fund for the enforcement of regulations on the retail marijuana industry and for other purposes of the fund as determined by the general assembly. However, 15 percent of the revenues collected from the sales tax on the retail sale of marijuana products will be distributed to local governments in Colorado that have one or more retail marijuana stores within its borders. In addition, the first $40 million of the revenues collected from the excise tax on the unprocessed retail marijuana product sales will be used for the state’s construction of schools.
Exception for medical marijuana
The sales and excise taxes provided in the Tax Bill do not apply to the wholesale or retail sale of medical marijuana.