The Pot Sales Tax Conundrum

marijuana sales tax

Legalizing weed is beneficial to communities in several different ways, but the most popular way, especially in terms of naysayers, is in the tax revenue generated by marijuana sales. With over $1 billion raised in Colorado alone, the government can no longer moan about pot sales taking the nation down the tubes when its very tax revenue generated may remedy dozens of fiscal concerns.

That said, there is a concerning trend that may cut tax revenue raised, and that is the continuing practice of reducing marijuana rates for drugs sold. Dropping prices result in dropping taxes, so while the cheaper product may make buyers happy, they may start to make the government grumble once more. In the past, states that legalized pot saw a quick boom of economic growth from taxes generated while buyers came out in droves to purchase pot before the spike later settled down as the business found its groove, evening out in both sales and taxes raised.

When both growers and sellers begin to price their products more competitively to attract the most business, the states stand to lose more from expected revenue they believed they had coming to them in projected estimates, resulting in a broken promise to taxpayers who pledged their support for legalization when they believed they had a huge amount to gain economically from the new legislation. In fact, many politicians run on proposed taxes for pot that will benefit something specific in the community. Governor Brian Sandoval of Nevada has stated that a 10% tax proposed on marijuana in his state would go toward education costs as well as raises for state employees. As a part of the state’s economic recovery plan, it would raise the Nevada budget to $8.1 billion spent in two years, which is 11% more than the state previously spent in its budget.

Supporting the tax, the Republican governor remarked, “While I did not support it, I respect the will of the voters who did. I will ask regulators to limit the sale of marijuana products and packaging that appeal to children or may be mistaken for candy.” The state’s tax would not be imposed on medical marijuana sales.

States like Colorado, Maine, Oregon, Nevada, Massachusetts and Oregon who tie their taxes to the cost of the product may learn from possible revenue drops, electing to increase taxes on pot by other means (such as a per sale rather than per dollar amount in general).

Still, states remain poised to prosper from any extra monies generated from marijuana sales, so shouldn’t any business be good business when it comes to pot? Given that pot sales in North America went up by 30% in 2016 and continue to grow as more states push for legalization, even if prices decline, increased usage will still result in generated funds. And in states like Colorado where a single joint can generate 15 cents of tax revenue, a steady stream of tax revenue is still sure to flow as the demand isn’t going anywhere.