Pubdate: Sun, 21 Sep 2014
Source: Denver Post (CO)
Copyright: 2014 The Denver Post Corp
Contact:  http://www.denverpost.com/
Details: http://www.mapinc.org/media/122
Author: Jeremy Meyer
Page: 1D

SCHOOLS OUT MILLIONS DUE TO LOOPHOLE

A loophole built into Colorado's marijuana system has allowed 
thousands of pounds of pot to go untaxed and has cost the state 
millions of dollars that should have gone to a school construction fund.

In 2012, Colorado voters overwhelmingly approved Amendment 64, which, 
among other things, promised that the first $40 million in excise tax 
revenue would be dedicated every year for the state school construction fund.

But this year, only about $10 million is expected to be raised thanks 
to a rule that allows marijuana retailers to avoid paying the tax in 
a one-time transfer of wholesale pot.

Surely, revenue will increase over time as the industry continues to 
mature and fewer license-holders are able to use the one-time, 
tax-free transfer.

Whether the excise tax revenue will ever reach $40 million is 
anyone's guess. My suspicion is the amount will never be attained and 
was a pie-in-the-sky figure meant to attract voters.

If that sounds familiar, you may be remembering the 2008 campaign for 
Amendment 50 that promised $182 million over five years to community 
colleges from the expansion of gaming. However, only $25.3 million 
has been generated through fiscal year 2012-13.

The marijuana excise tax revenues would certainly grow if the 
loophole that was created by regulators to launch the industry was 
closed. There are still 275 license holders who could take advantage 
of it, according to one source.

The loophole was created to make sure enough pot would be in the 
retail marketplace when doors opened on Jan. 1, 2014. Regulators 
allowed medical marijuana licensees converting to retail a one-time, 
tax-free transfer.

That transfer was a big difference between Colorado and Washington, 
the other state that legalized retail marijuana, and why the 
Centennial State was out of the door first. Washington had to grow 
its retail crop from seed.

Colorado officials say 9,711 pounds of medical pot was transferred 
tax-free to retail stores, 4,724 pounds of medical marijuana was 
moved to retail marijuana products and manufacturers, and 8,576 
pounds of medical pot was transferred to retail marijuana cultivation 
facilities. (That last tranche will be subject to the tax once it is 
transferred or sold to another marijuana establishment).

It is estimated the untaxed pot would have provided $3 million for 
the state school construction fund-or twice what the fund received in 
fiscal year 2013-14.

Kathy Gebhardt, a member of the Public School Capital Construction 
Assistance Board that provides grants for school construction and 
renovation, knew the numbers were going to be low after seeing 
February's receipts.

"The first month we were thinking we were going to be rolling in 
cash," she said. "Then the second month it was, 'Wait a minute. We 
are only getting a fraction of what we thought we were going to get.' "

This was not the voter intent, Gebhardt said.

"I don't think anyone who voted for (Amendment 64) thought this would 
happen," she said. "They thought (the money) would go to school kids. 
This is coming at the expense of kids in really needy school districts."

The Building Excellent Schools Today, or BEST, fund is a competitive 
grant program that helps districts with capital construction. It is 
able to support projects in rural school districts that don't have 
large property bases necessary for bond projects.

The BEST fund over the years has received more than $385 million in 
revenue, 90 percent from the State Land Trust. This year, the BEST 
fund is helping construct buildings in the Edison 54JT School 
District and supporting projects in dozens of districts around the 
state for things like roof replacements and boilers.

Marijuana taxes are providing less than 1 percent of the program's 
funds-or $3.1 million.

"It would have made a big difference," Gephardt said. "Whenever there 
is a tax credit on the other side there is somebody to whom the tax 
credit should have gone."

Proposition AA, which was approved by voters in 2013, mandates a 15 
percent excise tax imposed on "unprocessed retail marijuana." (My emphasis.)

But Amendment 64 says no excise taxes can be charged on pot 
cultivated as medical marijuana.

A transfer, logically, of medically grown pot couldn't be taxed, 
which is the basis for the loophole.

The simple solution, then, is to discontinue transfers. The state 
doesn't need them anyway. The retail pot industry is up and running 
now and doesn't need the influx of medical pot to prop up retail stores.

Plus, transfers disadvantage retail growers, who have to pay the tax 
when medical growers don't for that one-time swap.

"It was never our intent to manipulate the market," said Rep. Dan 
Pabon. "It's a correction that needs to be made."

Pabon said a draft bill already has been written that would stop the 
transfers after Jan. 1, 2016.

But the loophole should be closed sooner-to match the voters' intent 
and make good on a promise that the revenue should be going to schools.
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MAP posted-by: Jay Bergstrom