Legal weed brings tax boost, but it’s modest

DENVER (AP) — To see the tax implications of legalizing marijuana in Colorado, there’s no better place to start than an empty plot of land on a busy thoroughfare near downtown Denver.

It is the future home of a 60,000-square-foot public recreational center that’s been in the works for years.

Construction costs started going up, leaving city officials wondering whether they’d have to scale back the project. Instead, they hit on a solution — tap $3.2 million from pot taxes to keep the pool at 10 lanes, big enough to host swim meets.

The Denver rec center underscores how marijuana taxation has played throughout Colorado and Washington. The drug is bringing in tax money, but in the mix of multibillion budgets, the drug is a small boost, not a tsunami of cash.

Much of the drug’s tax production has been used to pay for all the new regulation the drug requires — from a new state agency in Colorado to oversee the industry, to additional fire and building inspectors for local governments to make sure the new pot-growing facilities don’t pose a safety risk.

And estimates for pot’s tax potential varied widely.

Some government economists predicted a huge boost to public coffers. Others predicted a volatile revenue stream that could spike wildly based on how consumers and the black market would respond.

Some even guessed that legal weed would cost more than it produced in taxes, through higher public safety costs and possible expensive lawsuits because the drug remains illegal under federal law.

In Colorado, where retail recreational sales began Jan. 1, 2014, the drug has a total effective tax rate of about 30 percent, depending on local add-on taxes.

Through October, the most recent figures available, Colorado collected about $45.4 million from sales and excise taxes on recreational pot sales.

That puts the state on pace to bring in less than the $70 million a year Colorado voters approved when the agreed to a statewide 10 percent sales tax and 15 percent excise tax on recreational pot.

Voters set aside the first $40 million in excise taxes for school construction; so far that fund has produced about $10 million.

But adding fees and licenses and the taxes from medical marijuana sales, Colorado had collected more than $60 million through October. Local governments can add additional taxes, too.

That’s what led to additional revenue streams like Denver’s $3.2 million for a bigger pool at its rec center.

In Washington, where recreational pot sales began in July, recreational weed is taxed on a three-tier system as the plant moves from growers to processors to retailers. The total effective tax rate is about 44 percent.

State tax officials are just getting a look at the first few months of pot taxes, and the money is coming in slowly because there aren’t many stores there yet. State economists have predicted pot sales will bring in $25 million by next July.

The state anticipates a $200 million increase by mid-2017, and about $636 million to state coffers through the middle of 2019.

There remain more questions than answers about pot’s tax potential.

A new president in 2017 could sue legal weed states to shut down sales completely.

And no one knows how the opening of new recreational markets will drain sales from Colorado and Washington. Oregon voters have approved retail pot sales beginning in 2016; Alaska has approved sales but it’s not clear when they’ll begin.

And the biggest market in the West — California — is expected to consider recreational pot legalization in 2016.

In other words, budgeters curious about marijuana’s tax potential will have to wait.

“If they’re looking at pot as something that might swoop in and save them, they need to keep looking,” said Joseph Henchman, an analyst who has studied marijuana tax collections for the Tax Foundation, a nonpartisan tax think tank.

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Kristen Wyatt can be reached at http://www.twitter.com/APkristenwyatt

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