DENVER–The Colorado House gave initial approval Monday to a special sales tax on recreational marijuana that was too high for Republicans, but just high enough for Democrats.
The chamber ended two days of heated debate by approving House Bill 1318, which calls for a 10 percent sales tax on marijuana, but gives the state legislature leeway to raise the rate to 15 percent.
The bill originally called for a 15 percent sales tax.
Both the sales tax and a 15 percent excise tax on marijuana must be approved by the voters in November. That’s the problem, say Republicans, who worry that the proposed taxes will prove too steep for Coloradans.
“We are running the risk of having this too high and this not passing the ballot,” said state Rep. Brian DelGrosso (R-Loveland). “We are playing a game of chicken with the voters. They don’t pass it, we lose. The entire state of Colorado loses.”
If voters reject the measure, Republicans fear the state’s general fund will wind up footing the bill for cost of regulating the recreational-marijuana industry, meaning less revenue for priorities like K-12 education and health care.
State Rep. Dan Pabon (D-Denver) dismissed such concerns as “fear-mongering,” assuring legislators that the voters will approve the tax rates. He cited a survey conducted in mid-April by Public Policy Polling, which showed that 77 percent of those surveyed supported the 10 percent sales tax, including 65 percent of Republicans polled.
“I don’t have a crystal ball. I have a poll that was put in the field April 15 and 16 of this year,” said Pabon. “The point is that this is going to pass.”
If he’s wrong, the state can avoid dipping into the general fund by hiking licensing and operating fees on the industry, said state Rep. Jonathan Singer (D-Longmont), who sponsored the bill. Under the Colorado Taxpayer Bill of Rights, voters must approve tax increases, but the legislature can enact fees.
“If doesn’t pass, instead of tax the heck out of you, we’ll fee the heck out of you,” said Singer.
Concerns about the vote have led legislators to discuss privately the possibility of placing another measure on the November ballot that would repeal Amendment 64 if the tax increase fails. The amendment, passed by voters in November, legalized recreational marijuana for adults 21 and over.
No repeal bill has been introduced, but an attorney for the Amendment 64 campaign issued a memo Monday saying that the proposal would violate the state constitution because only revenue-related measures may appear on the ballot in odd-numbered years.
The repeal wasn’t mentioned during Monday’s House debate, but House Minority Mark Waller took issue with Pabon’s confident guarantees that a sales tax that could reach 15 percent would win voter approval.
“Fear mongering? What on earth are you talking about?” said Waller. “To say we’re concerned about a tax increase going to the ballot and having a concern about whether that’s going to pass is just plain common sense. It’s not fear mongering.”
Republicans also brought up the black-market scenario, arguing that if the taxes on recreational marijuana are too high, consumers will revert to underground purchases.
“Whether we like it or not, there’s already an entrenched black market in place,” said state Rep. Dan Nordberg (R-Colorado Springs), who sat on the Amendment 64 Implementation Task Force. “We run the risk of competing with the black market and having the black market win.”
Pabon argued that Washington, the only other state to legalize recreational marijuana, has set its tax rate at a whopping 75 percent. At its highest, the Colorado tax rate under discussion would approach 40 percent, including the excise tax, special sales tax, along with existing state and local sales taxes.
The 75 percent rate in Washington isn’t solely a sales tax. The ballot measure, Initiative 502, creates three 25 percent excise taxes on producers, processors and retailers that will result in an effective 44 percent tax on consumers, according to the state’s Liquor Control Board, which is in charge of implementing the measure.
Even in Washington, state officials, including state “pot czar” Mark Kleiman, are debating whether the rate is so high that it will discourage legal sales.
“What if you gave pot legalization and nobody came?” said Kleiman in a March television interview as reported by online publication The Raw Story. “It is entirely possible that by the time we finish regulating and taxing this product, it’s going to be uncompetitive with what you can get at the collective gardens.”
The Colorado House bill must pass on third reading before moving to the Senate.