Voters Make Marijuana Colorado’s Most Heavily Taxed Consumer Product

Yesterday
Colorado voters overwhelmingly
approved Proposition AA, which authorizes a 15 percent excise
tax and a special sales tax of up to 15 percent (intially set at 10
percent) on marijuana products sold by the state-licensed stores
that are scheduled to open next year. The margin, 65 percent to 35
percent, was almost exactly the same as the margin by which voters

rejected an income tax hike aimed at boosting funding for
public schools. Most of the annual revenue from the marijuana
excise tax—the first $40 million—likewise is earmarked for a school
construction fund. Since marijuana consumers currently are a
relatively small minority (around
12 percent of the population), these results are not terribly
surprising. Given the choice, voters will always prefer that other
people pick up the tab for their stuff.

All of the proposed local taxes on marijuana also passed by big
margins. Denver voters
authorized an additional sales tax by a margin of  more
than 2 to 1 (69 percent to 31 percent). The tax is initially set at
3.5 percent, but the city council has leeway to raise it as high as
15 percent. By a vote of 67 percent to 33 percent, Boulder voters

approved a 3.5 percent sales tax that can be raised as high as
10 percent. Littleton voters
approved a 3 percent sales tax by a vote of 64 percent to 36
percent.

The upshot is that marijuana will be the most heavily taxed
consumer product in Colorado by far, taxed at a
much higher rate than alcohol even without taking local taxes
into account. That situation is hard to reconcile with Amendment
64’s
aim of taxing marijuana “in a manner similar to alcohol,” and
it surely makes no sense in light of the two products’
relative hazards, which were a major theme of the legalization
campaign. If legislators take full advantage of their new tax
authority, marijuana in Denver, the center of the retail cannabis
industry, will be hit by a 15 percent excise tax plus sales taxes
totaling 38 percent (including standard and special state and local
taxes). With taxes that high, the state-licensed outlets may have

trouble competing with the black market and with homegrown
marijuana. (Colorodans are allowed to grow up to six plants at home
and share the produce, one ounce at a time, “without
remuneration.”) Legislators may find that if they set taxes too
high, the result will be less revenue rather than more.