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Colorado Enacts Pot Tax

Colorado clearly does not stick to the trends. Whether it is legalizing marijuana or attempting to get Northern Colorado to become the 51st state, Colorado has been all over the news during the past year. Recently, the state had on its ballot an interesting tax that stayed in line with Colorado’s unusual politics. Specifically, on November 5, 2013, Colorado voters passed the pot tax.

On its face, the tax appears to operate similar to somewhat steep excise tax. It appears that recreational marijuana sales will be subject to a 25% tax which goes into effect on January 1, 2014. Of the 25%, 15% will be allocated to public school construction projects and 10% will go to funding enforcement regulation on the retail pot sales. This excise tax, which is similar to tobacco and cigarette taxes, is in addition to 2.9% sales tax at the retail level. Colorado estimates that the tax will generate some $35 million in year one and $67 million in year two. In total, pot users will pay an estimated $230-$250 per ounce of weed in Colorado.

Interestingly, the tax is not as steep as Washington’s efforts to impose hefty tax on the newly legalized drug. Washington imposes a 25% tax on every sale in the retail chain and it estimates the tax will raise about $2 billion in Washington in the first five years.

The tax was, of course, met with debate on both sides of the aisle. Opponents of the law suggested that the high state and local taxes will encourage a black market, which is similar to the problems faced before the drug was legalized. Proponents of the law argue the tax is essential to fund the infrastructure on the “new industry.” Similar to regulating alcohol and tobacco, the lawmakers believe an adequate tax is key to make sure only those 21 or older possess their limit of one ounce of marijuana. From a state and local tax professional’s perspective, it comes as no surprise that the legalization of marijuana comes along with state revenue incentives. After all, isn’t everything motivated by money these days?

About the author: Mr. Donnini is a 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’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 is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact him via email or phone at 954-642-9390. Please also visit his blog , Facebook, and Twitter.

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