The proposed Marijuana Tax Equity Act would end the federal prohibition on marijuana sales, effectively allowing it to be taxed by the federal government. While it would alleviate some of the fears of prosecution among growers, sellers and users, it would also create additional tax liabilities for those in the marijuana industry. According to a Forbes report, the bill would impose a 50% tax on sales and an additional occupational tax on workers who are involved in the growing and cultivation of marijuana. Many industry leaders and advocate are wondering if the trade-off is even worth it.
While there are justifications for the federal taxation of marijuana, there is also the risk that the taxation could be significantly costly and limit the amount of money remaining in local and state economy. Federal taxation could also impact the amount of state revenue collected from growers and distributors. Colorado currently taxes 2.9% on sales and an additional 10% marijuana tax. There is also an additional 15% tax on average retail marijuana. Even at the state level, that is a total of 27.9% mark-up for taxes. Colorado projected to collect $33.5 million in the first six months after legalization, but the number proved too high an estimate. According to reports, the state collected $21.5 million less than anticipated.
There were a number of explanations for the missed projection. Some believe that buyers are still turning to the black market, which is significantly cheaper. A research group suggests that only 60% of total sales are made legally, primarily because legal marijuana is so heavily taxed and expensive. Even Colorado, tax rates and collection is still being contested. There have also been claims that paying taxes is a violation of the 5th Amendment because it is self-incriminating. Plaintiffs who have filed claims alleging 5th Amendment violations, want the taxes on recreational marijuana to be banned. The argument is that tax laws are requiring businesses and individual consumers to make themselves vulnerable to federal prosecution. The plaintiffs lost the injunction in this case, but are continuing to challenge tax laws.
Colorado marijuana laws require the state to refund excess collections to tax payers. Some believe that the reason for the missed mark, unreasonably high expectations, was to prevent refunds. As a controlled substance medical marijuana is still illegal under federal law, creating significant tax problems for even legal operations. In addition to issues with business deductions under the tax code, marijuana operators also have to determine tax status and liabilities as business owners.
Our Orange County medical marijuana attorneys are experienced in helping dispensaries ensure compliance. We will take the time to answer questions, review local, state, and federal laws and help you stay abreast of regulations. In the event that you are charged with a crime or if your business is under investigation, we are prepared to aggressively defend your rights and interests.
The Los Angeles CANNABIS LAW Group represents growers, dispensaries, collectives, patients and those facing marijuana charges. Call us at 714-937-2050.
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