Saturday, February 5, 2011

Oglesby: Taxing Marijuana

Pat Oglesby (Adjunct Professor, North Carolina) has posted Laws to Tax Marijuana, 59 State Tax Notes 251 (Jan. 24, 2011), on SSRN (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1741735). Here is the abstract:

U.S. states and cities are now using six schemes to generate revenue from medical marijuana: specific marijuana taxes based on percentage of gross receipts, square footage of business space, square footage of grow space, and number of plants – in addition to an array of specific license fees and general sales taxes. The tax schemes we use for tobacco – weight – and alcohol – potency – have not been tried for marijuana. All existing taxes apply only to doctor-recommended marijuana, which is legal in 15 states, though many formal proposals would tax and legalize all marijuana.

This article examines existing and proposed laws to tax marijuana: what governments might tax it; how to define the target; what the tax base should be; how to set rates; how to correct early efforts that go wrong and to win the inevitable price war against bootleggers; what license fees to impose; how to deal with home production; whether to give tax breaks for small business, environmentally friendly operations, or medical marijuana; how to identify and track tax-paid product; where in the supply chain to collect tax; whether state monopoly makes sense as a supplement to taxation; and what the effective date and any sunsetting mechanism should be.

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