Should marijuana businesses pay tax on gross profits or net profits? It sounds like a silly question. After all, virtually every business in every country pays tax on net profits, after expenses. But the topsy-turvy rules for marijuana seem to defy logic. And taxes are clearly a big topic these days.
Many have suggested that legalizing marijuana would mean huge tax revenues. As more states legalize it, the cash hauls look ever more alluring. In Colorado, the governor’s office estimated that it would collect $100 million in taxes from the first year of recreational marijuana. In the end, Colorado’s 2014 tax haul for recreational marijuana was $44 million, causing some to say that Colorado’s marijuana money is going up in smoke.
Still, that isn’t bad for the first year. Colorado was first to regulate marijuana production and sale, so other governments are watching. Colorado also collected sales tax on medical marijuana and various fees, for a total of about $76 million. The taxes are significant, but not all the sales are going through legal channels. Perhaps it was silly to think they would.
Avenues for cheaper prices in the illegal and medical markets can trump legal recreational sales where tax revenues are highest. That makes perfect sense, and is calling for a re-examination of tax rates and enforcement. In Colorado, legalization has surprised both supporters and critics, with a mixture of good and bad.
Washington state became the second to legalize recreational marijuana. Oregon and Alaska have followed. With four recreational victories, activists are pushing legalization in other states, including California. The tax tally is likely to keep growing, if not always as predicted.