Taxing Marijuana
Park Hill’s City Council representatives discuss recent proposals to tax recreational marijuana in Denver
Councilman Albus Brooks, District 8
In November, voters in the State of Colorado voted in favor of retail use of marijuana for those 21 and older. In District 8, it passed with 67% support. While I have my concerns on the passage of the bill and how this law will disproportionately affect young people in middle school and high school; it is now the law and we must allow room from this industry to grow and flourish just like any other business.
Many have stated that we should put a heavy tax burden on this new industry so the revenue generated can be utilized for new services. Frankly, it is not that easy and if this industry is overtaxed it will allow the black market to look a bit more attractive, which defeats the purpose of creating the law in the first place. We as lawmakers need to strike the right balance between tax revenue and maintaining a viable market. Below is an explanation of two tax proposals proposed for Denver:
The state is proposing a 15% excise tax, which will be on wholesale transactions, and another 10% sales tax. These will be on the ballot as one question in November. The city will receive a share-back from the state sales tax that amounts to 15% of the 10% sales tax collected in Denver.
For the city, I am proposing that we have the ability to tax up to 15% and will set a floor of 5% this year. I propose that the funds received from these taxes be spent in the following ways: regulation of the industry, enforcement within the industry and designating funds towards affordable housing, which is underserved in our city.
Lastly, this is a new industry and we are shooting in the dark a bit because there is no baseline. However, we were very successful with the implementation of medical marijuana and I am confident we will have a smooth transition.
Council President Pro-Tem Chris Herndon, District 11
Like communities across the state, Denver is developing responsible regulations to implement Amendment 64 – approved by voters last November – which allows for the recreational use of marijuana by adults.
Our guide throughout this process is our responsibility to the people of Denver. As we navigate these uncharted waters, we are primarily responsible for doing our best to ensure the continued safety and well-being of our citizens, especially our children. We are also entrusted with financial responsibilities, and we must be good stewards of our citizens’ money when considering issues with budgetary repercussions.
In the context of legal, adult-use recreational marijuana, we have to make sure other city services are not reduced in the effort to fund responsible regulation of the industry. Any tax we impose on legal, recreational marijuana must cover the costs the city incurs associated with implementation. These potential costs include but are certainly not limited to: hiring additional employees at Excise & License, hiring additional hearing officers, and ensuring the Denver Police Department and Denver Fire Department have the training and resources they need to effectively carry out additional responsibilities.
The proposed 5% tax on recreational marijuana would make the total amount of taxes on the substance roughly the same as taxes on cigarettes.
As stewards of city funds, it is our responsibility to weigh all reasonable options and work with stakeholders to develop policies leading to the best possible outcomes. I will consider whether the city should have the ability to use recreational marijuana-generated tax funds to reinvest in sustaining or enhancing city services, much like the model at the state level where funds collected through the Colorado Lottery are used to support open space throughout the state.
In carrying out our duties, we must keep in mind that good government is responsive to the changing needs of its community. With that in mind, my goal is to put in place responsible policies that do not unreasonably restrict the ability of the city to respond to the future needs of its citizens.
Council President Mary Beth Susman, District 5
In listening to various marijuana business owners, community groups, enforcement and medical personnel, we learned the enforcement of recreational marijuana regulations may require greater resources because of the extent of the anticipated market. I recognize that there is a fear that we might tax marijuana so high that we drive consumers to the black market.
To study this I met with several economists regarding the tax tolerance for consumers related to underground markets. For example, how much is a person willing to pay for a medicinal drug in Mexico that is only available by prescription in the USA? What is the amount a consumer is willing to pay that would be worth the risk of doing something illegal or not knowing whether the ingredients are pure? The answer they gave me is that the amount one would pay to be legal and safe is rather high.
Currently the sales tax rate on any item in the City & County of Denver is 3.62%. Denver collected $4.6 million in taxes on the sale of medical marijuana in 2012. With the introduction of recreational marijuana, portions of sales may transfer from medical to recreational marijuana, but I anticipate that present revenues from the sale of marijuana both medical and recreational will remain the floor of expected tax revenue. The question is whether we should ask voters to allow us to raise the sales tax above 3.62% for recreational marijuana.
Perhaps an additional tax on recreational marijuana of somewhere between 2.5% and 5% – resulting in a total tax rate between 6.12% and 8.62% for city taxes might be appropriate. The extra tax collected would be available for regulation, enforcement, education, and treatment associated with recreational marijuana.
A Denver Post Poll on July 10th reported that 60.27% of respondents would be in favor of a 5% sales tax on recreational marijuana.
Moreover, we may need to be open to the concept of providing ourselves a possible ceiling of a 15% tax should the enforcement and education needs have unanticipated expenses.
The City Council committee on Amendment 64 has been discussing these and other issues with many stakeholders at their meetings and is deliberating several ordinance items including taxation.