Pot tax revenue projected at $172M a year

State House News Service
Published: 3/21/2017 10:45:07 PM

By the end of the second year of legal marijuana sales, Massachusetts could collect as much as $172 million annually in marijuana tax revenue, the Department of Revenue said Monday.

Legal sales of marijuana cannot begin until July 2018, but DOR presented to the Joint Committee on Marijuana Policy an analysis based on data from Colorado and Washington estimating annual taxable sales of up to $1.433 billion.

DOR estimated a range in taxable sales between $771 million and $1.433 billion with a middle point estimate of $1.102 billion, producing total state and local taxes of between $93 million to $172 million, with a middle point estimate of $132 million.

“Our midpoint estimate for the first 12 months of legalized recreational marijuana is $64 million (in revenue), with a range from $45 million to $83 million,” Revenue Commissioner Michael Heffernan said. “The revenue estimate for the second 12 month period is $132 million, with a range from $93 million to $172 million.”

Beyond the 24-month horizon, Heffernan said, the uncertainties are “too great to support a reliable estimate.” He also stressed that the analysis should be viewed as “having been done carefully and professionally, and yet containing a large amount of uncertainty.”

Ballot law supporters have cautioned against boosting taxes on marijuana because, they say, it will driver buyers to the black market. On Monday, municipal officials testified that some communities are interested in banning retail sales within their borders and warned home-grow provisions in the law could also bolster the black market, estimating the 12-plant maximum for a house with two adults could make pot accessible even in towns that outlaw retail sales.

To conduct its analysis, DOR assumed retail marijuana sales would begin July 1, 2018 with the tax structure as prescribed by the law approved last year by voters: a 3.75 percent marijuana tax on top of the state’s 6.25 percent sales tax with the ability for municipalities to add an additional 2 percent local option tax. DOR also assumed all municipalities with retail marijuana shops will impose the 2 percent tax, resulting in an effective tax rate of 12 percent.

Among the possible changes to the voter-approved marijuana law, the tax rate on sales appears liked to be increased based on feedback from legislators.

At an effective tax rate of 12 percent, Massachusetts would have the lowest marijuana rate of any state that has legalized the adult use of the drug except for Maine, where the ballot law approved last year calls for a tax rate of 10 percent. Colorado taxes marijuana at 29 percent, Washington 37 percent, Oregon 17 percent and Alaska 25 percent, according to the Tax Foundation.

Of the $93 million to $172 million expected in tax revenue, $48 million to $90 million would come from the state sales tax; $29 million to $54 million from the marijuana excise tax; and $15 million to $29 million from the local option tax, DOR said.

DOR estimated that the state would collect about $11 million more a year if it increased the marijuana excise tax rate from 3.75 percent to 5 percent, an extra $43 million if the excise tax rate were boosted to 7.5 percent, and an additional $136 by making the excise rate 15 percent.

The DOR analysis also projects how much money the state could collect if it keeps the 3.75 percent marijuana excise tax and adds a “marijuana-specific sales tax” of either 5, 10 or 20 percent on top of the state sales tax, marijuana excise tax and local option tax.

Under those scenarios, Massachusetts would collect $59 million, $121 million and $236 million, respectively, more than under the tax structure laid out in the current law, DOR said.


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