Coloradans could see an unexpected windfall soon thanks to a rule of state tax policy.
The state of Colorado is currently obligated to refund $60 million in tax revenue from marijuana sales due to the state’s Taxpayer’s Bill of Rights, which requires the state to give tax revenue back to citizens when there is a surplus or they received more than expected. The state is expected to petition voters to be able to keep the extra revenue, which has been previously allotted to school construction and education projects, and would have to be funded out of the General State Fund if taxpayers choose to be reimbursed.
While voters should allow the state to keep the extra revenue to fund the previously planned education projects, this matter warrants a larger discussion of state drug tax policy as we enter the second year of recreational marijuana sales in Colorado. Taxes on marijuana and spirits should be lowered.
Currently, alcohol and marijuana tax policy in Colorado is a confusing quagmire of tax rates based on the toxicity and type of certain drug products that vary wildly from product to product. The largest discrepancies are between alcohol and marijuana and light versus hard liquor. Distilled spirits and marijuana are taxed at a rate four times higher than beer and wine in Colorado.
Within alcoholic beverages, there is an over $2-a-gallon difference in taxes between the lightest beers and hardest spirits. Colorado taxes beers at only 5 cents a gallon, one of the lowest rates in the nation, while taxes on spirits top out at $2.28 per gallon.
There is a similar difference in taxation between medical and recreational marijuana. Medical marijuana is only subject to a state sales tax of 3 percent, while recreational cannabis products are subject to special sales and excise taxes that total 25 percent.
These large discrepancies in taxation based on confusing metrics of drug type and toxicity are confusing to consumers and should be lowered to a rate equal across all legal drugs because current policy only serves to give competitive advantage to certain businesses and enrich the state. The thinking behind it simply doesn’t add up any way you choose to look at it.
By the logic of taxing drugs based on their toxicity, like alcoholic beverages are in Colorado, marijuana should be taxed even less than beer, and not more than the hardest liquors like it currently is. Governments should not be making monetary judgement calls on what citizens choose to smoke, drink or otherwise ingest on their own will as it is harmful to businesses’ and citizens’ freedom.
Taxing drugs based on their intended use, like the discrepancy between medical and recreational marijuana taxes, is an example of fiscal judgement by state government on citizens’ drug habits. It is not the place of governments to incentivize a specific use for a drug over any other as that introduces competitive advantages into the marketplace. Already, the growth of recreational cannabis shops in Colorado and Washington is being stunted because marijuana is far cheaper to obtain from such as medical pot shops or the black market. According to some recreational pot sellers such as James Lathrop, owner of Cannabis City in Seattle, their business is directly harmed by the difference in taxation between medical and recreational products.
“Am I afraid medical marijuana dispensaries (are) taking my business?” Lathrop asks, as quoted in Calyx King Consulting, “They have the business, they are industry.”
State drug policy needs to be equalized to eliminate competitive advantages in the drug market. While voters should allow Colorado to keep the surplus revenue gained from marijuana taxation, lawmakers in turn should revisit drug tax policy to equalize taxation along all drug products. If the goal of legalizing marijuana for recreational sale is to squelch black market sales, it should not be taxed to such excess that it creates a clear disadvantage for legal, recreational dealers. Taxation based on toxicity and intended use is a confusing policy that is an affront to businesses and consumers alike. Alcohol, marijuana and all legal recreational drugs should be taxed at flat, equal rate.
Collegian Senior Columnist Sean Kennedy can be reached at firstname.lastname@example.org or on Twitter @seanskenn.