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 …
Links
Colorado Constitution http://tornado.state.co.us/gov_dir/leg_dir/olls/constitution.htm#ARTICLE_X_Section_20
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.