Taxing matters, even with pot

Among the recurring themes to the editorials and columns published in the Business Times is the economic tenet that taxes matter. Tax rates and tax policies exert profound effects on businesses and the way they operate.

Taxes play a substantial role, for example, in determining where businesses operate and growth occurs, whether in such comparatively friendly states as  South Dakota, Texas and Wyoming or such decidedly less conducive states as California, Minnesota and New Jersey. Consider, too, a high corporate tax rate in the United States that’s prompted companies to relocate their headquarters all the way out of the country. (For more on the practice known as “inversion,” read Kelly Sloan’s excellent column on the next page.)

Now from the Tax Foundation comes an interesting study of how tax rates have affected marijuana sales in Colorado. Yep, even pot is subject to the consequences, sometimes unintended, of tax policies.

The foundation found that tax revenues from the sale of marijuana have come in far below projections in part because of differences in the way pot is taxed.

Colorado’s marijuana tax is structured as a 15 percent excise tax on the average market rate of wholesale marijuana plus a 10 percent state tax on retail marijuana sales and a 2.9 percent state sales tax. That’s not counting additional local sales taxes. But at the same time, only state and local sales taxes apply to so-called medical marijuana, meaning the tax rate is about a third of that imposed on recreational marijuana.

It initially was assumed sales of recreational marijuana would cannabilize the sales of medical marijuana. But in large part because of the tax differential, that hasn’t happened. Medical marijuana sales have held steady.

We’ve written it before and undoubtedly will again: taxes matter.