Pubdate: Sun, 29 Nov 2015
Source: San Diego Union Tribune (CA)
Copyright: 2015 Union-Tribune Publishing Co.
Contact:  http://www.utsandiego.com/
Details: http://www.mapinc.org/media/386
Note: Seldom prints LTEs from outside it's circulation area.
Author: Steven Greenhut

PRICE FOR POT FREEDOM IS A HIGHER TAX BILL

Tax Agency Estimates That Cannabis Industry Is a Growing Source of Revenues

SACRAMENTO - The state's cannabis industry is learning that its 
expanding freedoms may come with a stiff price tag.

In 1996, the state's voters approved Proposition 215, which legalized 
the sale and purchase of marijuana for medical purposes. It was 
hailed as a victory for freedom, but the initiative's details were 
hazy and the state has struggled for two decades to figure out how to 
tax and regulate it - especially given the feds still treat marijuana 
as a banned narcotic.

That's all changed with the recent passage of a new package of 
medical-marijuana laws that attempt to turn a legal gray area into 
something that's simple and understandable - or at least as clear as 
any of California's other complex, business-related regulatory 
regimes. Pot growers and distributors gain certain protections, but 
are now going to have to pay their share of taxes.

That's why California's tax-collection agency, the Board of 
Equalization, has been leading the discussion about some of the most 
vexing medical-marijuana problems.

The agency previously held hearings calling for the creation of a 
state-chartered bank that handles marijuana transactions. Federal 
banking rules preclude dispensaries from having bank accounts, which 
makes it tough to pay the state - and has led to situations where 
growers and sellers come into BOE offices with trash bags filled with 
greenbacks.

The agency recently held hearings on transportation issues. If police 
pull over a truck filled with many pounds of marijuana, how are they 
to know whether these are from a legal grow or a drug smuggler?

Police and distributors want clear rules. To the state, this issue 
largely is about fees and fines.

Meanwhile, the tax board has concluded research into the expected 
windfall as these laws go into effect. It had previously predicted 
that marijuana businesses were paying between $49 million and $110 
million annually. The research found the taxes now collected are 
slightly above $49 million. It's definitely on the low end.

If all such businesses were paying the proper tax, the state would be 
receiving more than $111 million based on estimated total 
medical-marijuana taxable sales in 2014 of $1.32 billion and a 
sales/use tax rate of 8.42 percent.

The clear rationale for these calculations: California voters are 
expected to eventually legalize marijuana for recreational purposes. 
Alaska, Colorado, Washington, Oregon and the District of Columbia 
have legalized recreational pot, although Ohio voters recently voted "no."

It's hard for tax authorities to miss a coming financial opportunity, 
as reported in Time magazine: "Pot is a boon for tax revenues in 
Colorado, outpacing revenue from alcohol taxes in the fiscal year 
ending on June 30. Colorado collected almost $70 million in marijuana 
taxes during that time, nearly double the $42 million collected from 
alcohol taxes."

California has more than seven times the population of Colorado, 
which suggests an enormous potential. The revenues aren't just for 
the state, but for cities and localities also. Board of Equalization 
Vice Chairman George Runner told me Wednesday the board also is 
eyeing an excise tax on marijuana - similar to the taxes the state 
imposes on alcoholic beverages. So the tax take could really soar.

The new marijuana laws make it easier for the state to track the sale 
and distribution of the product.

That is important for enhancing its revenue potential.

"It's very difficult to do any effective auditing and follow up with 
dispensaries, when we don't know where the product comes from," 
Runner said. Currently, the state can check with, say, beer 
distributors to make sure the numbers the retailer is providing 
reflect an accurate amount of taxable sales. People tend to pay their 
taxes when they know they can be audited, he explains.

Writing in the Los Angeles Daily News, author Susan Shelley recently 
argued that medical-marijuana companies "may soon be craving pain 
relief instead of selling it" given they will now have to answer to a 
long list of state agencies, will have to face new fees and fines, 
and put up with the same level of regulation faced by almost every 
other California business. "This story ends with a thriving, 
statewide, tax-free, illegal drug trade," she predicts.

It's a reasonable prediction. Black markets are growing even for some 
legal products - cigarettes jump to mind - as people try to evade 
burdensome rules and taxation.

Marijuana has "always been a hard industry to regulate and collect 
from because they have such a history of operating ... underground," 
Runner explained.

So state officials have to learn not to get too greedy, or they may 
receive a smaller revenue stream than expected.

And marijuana advocates need to remind themselves that sometimes the 
price for "freedom" is a much-higher tax bill.

"Pot is a boon for tax revenues in Colorado, outpacing revenue from 
alcohol taxes in the fiscal year ending on June 30. Colorado 
collected almost $70 million in marijuana taxes during that time, 
nearly double the $42 million collected from alcohol taxes." Time 
magazine article
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