Most states offer some form of a sales tax holiday. Usually coinciding
with the back to school calendar, shoppers are incentivized to buy clothes
and other school supplies if they shop during the sales tax free period.
So why not have the same idea for marijuana? I guess that was what Colorado
was thinking when it announced its first marijuana tax holiday.
Yes you read the headline and the lead in correctly, Colorado announced
that marijuana will be tax free. Sort of along the same lines as back
to school supplies for recreational participants, marijuana users will
be allowed to purchase their supplies tax free. Mark September 16, 2015
on your calendar as Gov. Hickenlooper signed a permanent tax break on
recreational marijuana effectively lowering the tax rate from 10% to 8%
in July 2017. To assist with the fiscal balancing due to a Colorado Taxpayer’s
Bill of Rights amendment, the governor has issued the one-time tax holiday.
Why would a state welcome such a holiday? Because tax policy demands it,
of course. In Colorado, Article X, Section 20 – The Taxpayer’s
Bill of Rights – plainly states that voters must approve new taxes
based on estimates of collections and state spending. Further, a 1992
amendment restricted the government revenue growth and requires the excess
amount be return to the taxpayers, unless taxpayers vote to allow the
government to keep the excess revenue. Essentially, when comparing the
sales tax projections to the actual amount, if the actual amount Colorado
receives in Sales Tax exceeds the estimates, then refunds are necessary.
This means that taxpayers get refunds right?
Well, not so fast. Colorado legislators introduced HB 15-1367 to allow
Colorado voters a chance to vote on whether Colorado can keep the $58
million in marijuana revenue or refund it back to the taxpayers. Regardless
of the outcome, Colorado taxpayers can thank its governor for the future
reduction in sales tax. The goal of the tax break is to lower the price
of marijuana effectively driving out the black market demand—the
market where goods or services are traded illegally.
If the vote does pass, then the $58 million will be allocated towards construction
and repair of public schools, Marijuana Tax Cash Fund, and to the state’s
general fund. Conversely, if the vote does not pass, then $25 million
would go to all Colorado Taxpayers through a tiered system, beginning
with the cultivators who pay the 15% wholesale excise tax rate. Further,
and possibly even better for taxpayers, effective January 1, 2016, sales
tax rates will be reduced from 10% to 0.1% until the fiscal balancing
occurs equaling a reduction of $13.3 million in collections or June 30,
whichever occurs first.
At the end the fiscal balancing and voter initiatives, how is the Marijuana
Sales Tax holiday relevant? Gov. Hickenlooper stated that the fiscal glitch
in the constitution is “part of the magic of living in Colorado.”
By eliminating sales tax for one day then restoring it, constitutional
obligations are met. The government has projected to lose $3.6 million
in revenue (seemingly pocket change) for the Marijuana Sales Tax holiday
based on the 15% excise tax on marijuana sales from cultivators to retailers.
Why September 16th in particular? It’s simple. The end-of-the-year
fiscal report is certified on September 15th allowing a proper balancing
of the budget.
Circle September 16th on your calendar and make an informed decision on
the voter initiative as to whether you would like the state to keep the
estimated $58 million or refund that amount back to the taxpayers. Only
in Colorado …
About the author: Mr. Donnini is the president and founder of Tobacco Tax
Refunds, Inc. He is also multi-state sales and use tax attorney and an
associate in the law firm Moffa, Gainor, & Sutton, PA, based in Fort
Lauderdale, Florida. Mr. Donnini has extensive knowledge handling wholesale
tax controversy and refunds.
In his law practice Mr. Donnini's primary practice is multi-state sales
and use tax as well as state corporate income tax controversy. Mr. Donnini
also practices in the areas of federal tax controversy, federal estate
planning, Florida probate, and all other state taxes including communication
service tax, cigarette & tobacco tax, motor fuel tax, and Native American
taxation. Mr. Donnini obtained his LL.M. in Taxation at NYU. Mr. Donnini
is licensed to practice law in Florida. If you have any questions please
do not hesitate to contact him via email [email protected]
or phone at 954-639-4496.