Colorado voters overwhelmingly passed heavy taxes on marijuana, and the state has collected tens of millions in the first year of legalization.
But all of the taxes raised from pot have to be refunded, unless lawmakers can agree on a solution. The Taxpayer Bill of Rights section of the state Constitution is triggering the refund, putting money for schools and prevention programs at risk.
For now, dispensaries like Colorado Harvest Company in Denver charge 22 percent in taxes for every pre-rolled joint, vaporizer, or brownie.
It’s an expense that customer Jason Swart doesn’t mind paying.
“Just for the convenience of being able to come in, go to a store, and the selection -- I think it’s well worth it,” Swart said.
Swart is new to Colorado; he just moved here from Kansas. But he recognizes that marijuana taxes help the state.
“As far as I know it goes to good things, Swart said. “Schools and roads. I know we got a lot of potholes.”
"Orwellian-type of situation"
“Legalize it and tax it” was the mantra of the pot movement in Colorado, and one of the big reasons voters approved of legalization. Now, though, the impending refunds are a bizarre turn of events that have taken many by surprise.
“This is an Orwellian-type of situation,” said Tim Hoover with the left-leaning Colorado Fiscal Institute.
Here’s the issue: the Taxpayer Bill of Rights, or TABOR, requires the state to ask voters to approve any new taxes. When doing so, the state must estimate the money the tax would raise, and estimate the overall tax collections without it.
“If you’re wrong on either of those things [a refund will kick in],” Hoover said.
And that’s exactly what ended up happening. State revenues came in higher than estimated because the economy here is strong, in part, due to the energy industry.
Hoover said ironically the pot tax money must be given back, even though pot taxes themselves have been disappointing.
“There is no bonanza of pot sales,” said Hoover. So far, about $58.7 million in pot taxes have been collected. “You might call it a lownanza. It’s less, well less, than what was projected, and the refunds are being caused by legal fine print in the Taxpayers Bill of Rights.”
The state has a few options to give the money back. It can hand out a small refund to everyone who pays income taxes, or it can reduce pot taxes to zero for a year. That’s not an option supported by State Sen. Pat Steadman, D-Denver. He argues that would jeopardize drug prevention and treatment programs and money earmarked for schools.
“To turn off the tax now or to pull back from our commitment to those programs now I think is really the wrong course,” he said.
Instead, he’s proposing a bill, with bipartisan support, that would again go to voters and ask them to allow the state government to keep the pot tax money it’s collected.
“Having the taxes in place is part of making this whole experiment with legal marijuana work,” Steadman said.
Paying taxes legitimizes industry, owner says
Colorado Harvest Company CEO Tim Cullen said he agrees with that approach. Sitting in his office filled with boxes of tax receipts for an IRS audit, he said he actually supports keeping the state taxes in place. Even though he knows fewer taxes would equal more sales.
“I think cannabis owners in Colorado are probably some of the only business owners in the country that are really excited to pay taxes,” said Cullen. “And we contribute a significant amount of money.”
That, he said, goes a long way to legitimizing the industry.