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“How High? Adjusting California’s Cannabis Taxes”


Taxes051816
The
title
of
this
post
is
the
clever
title
of

this
interesting
new
report

from
California’s
Legislative
Analyst’s
Office
released
last
week. 
(Hat
top:

Crime
&
Consequences
.) 
Here
is
part
of
the
report’s “Executive
Summary”:

Proposition
64
(2016)
directed
our
office
to
submit
a
report
to
the
Legislature
by
January
1,
2020,
with
recommendations
for
adjustments
to
the
state’s
cannabis
tax
rate
to
achieve
three
goals:
(1)
undercutting
illicit
market
prices,
(2)
ensuring
sufficient
revenues
are
generated
to
fund
the
types
of
programs
designated
by
the
measure,
and
(3)
discouraging
youth
use. 
This
report
responds
to
this
statutory
requirement
and
discusses
other
potential
changes
to
the
state’s
cannabis
taxes. 
While
this
report
focuses
on
cannabis
taxes,
nontax
policy
changes
also
could
affect
these
goals.

Proposition
64
established
two
state
excise
taxes
on
cannabis. 
The
first
is
a
15
percent
retail
excise
tax,
effectively
a
wholesale
tax
under
current
law. 
The
second
is
a
tax
based
on
the
weight
of
harvested
plants,
often
called
a
cultivation
tax. 
(The
measure
authorizes
the
Legislature
to
amend
its
tax
provisions
without
voter
approval,
but
the
scope
of
this
authorization
is
unclear.)…

We
analyze
four
types
of
taxes:
basic
ad
valorem
(set
as
a
percentage
of
price,
such
as
the
current
retail
excise
tax),
weight-based
(such
as
the
current
cultivation
tax),
potency-based
(for
example,
based
on
tetrahydrocannabinol
[THC]),
and
tiered
ad
valorem
(set
as
a
percentage
of
price
with
different
rates
based
on
potency
and/or
product
type). 
Our
analysis
focuses
primarily
on
three
main
criteria:
(1)
effectiveness
at
reducing
harmful
use,
(2)
revenue
stability,
and
(3)
ease
of
administration
and
compliance. 
No
individual
type
of
tax
performs
best
on
all
criteria. 
For
example,
tiered
ad
valorem
and
potency-based
likely
are
best
for
reducing
harmful
use,
but
basic
ad
valorem
is
easiest
to
administer. 
Given
these
trade-offs,
the
Legislature’s
choice
depends
heavily
on
the
relative
importance
it
places
on
each
criterion. 
That
said,
the
weight-based
tax
is
generally
weakest,
performing
similarly
to
or
worse
than
the
potency-based
tax
on
the
three
main
criteria….

Any
tax
rate
change
would
help
the
state
meet
certain
goals
while
likely
making
it
harder
to
achieve
others. 
On
one
hand,
for
example,
reducing
the
tax
rate
would
expand
the
legal
market
and
reduce
the
size
of
the
illicit
market. 
On
the
other
hand,
such
a
tax
cut
would
reduce
revenue
in
the
short
term,
potentially
to
the
extent
that
revenue
could
be
insufficient. 
Furthermore,
lower
tax
rates
could
lead
to
higher
rates
of
youth
cannabis
use. 
With
a
thriving
illicit
market,
however,
much
of
the
cannabis
used
by
youth
could
avoid
taxation. 
Where
possible,
this
report
provides
quantitative
estimates
of
the
short-term
effects
of
rate
changes….

We
view
reducing
harmful
use
as
the
most
compelling
reason
to
levy
an
excise
tax. 
Accordingly,
we
recommend
that
the
Legislature
replace
the
existing
retail
excise
tax
and
cultivation
tax
with
a
potency-based
or
tiered
ad
valorem
tax,
as
these
taxes
could
reduce
harmful
use
more
effectively. 
If
policymakers
value
ease
of
administration
and
compliance
more
highly
than
reducing
harmful
use,
however,
the
Legislature
might
prefer
to
keep
the
existing
retail
excise
tax. 
In
contrast,
we
see
little
reason
for
the
Legislature
to
retain
the
weight-based
cultivation
tax….

If
the
Legislature
decides
not
to
adopt
a
potency-based
or
tiered
ad
valorem
cannabis
tax,
we
nevertheless
recommend
that
the
Legislature
eliminate
the
cultivation
tax.
In
this
case,
we
recommend
that
the
Legislature
set
the
retail
excise
tax
rate
somewhere
in
the
range
of
15
percent
to
20
percent
depending
on
its
policy
preferences.

https://lawprofessors.typepad.com/marijuana_law/2019/12/how-high-adjusting-californias-cannabis-taxes.html

About the author

saskbusiness@hotmail.com

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