Marijuana Taxes 

Table of Contents

Background

Amendment 64, which was passed by Colorado voters in 2012, allows adults 21 years of age or older to consume or possess up to one ounce of marijuana.  Amendment 64 also required the state legislature to enact an excise tax on retail marijuana with the first $40 million in tax revenue per year dedicated to fund public school construction.

In 2013, Colorado voters approved Proposition AA, which allows the state to levy up to a 15 percent excise tax on unprocessed retail marijuana as well as up to a 15 percent retail sales tax on retail marijuana.¹  Medical marijuana is subject to the 2.9 percent state sales tax, which applies to the retail sale of most goods and services.  As voter-approved revenue, the 15 percent retail and 15 percent excise tax is exempt from the spending limits of TABOR.  The 2.9 percent sales tax is subject to TABOR’s limits.

Tax Rate

Medical marijuana is subject to the 2.9 percent state sales tax, which is applied to most purchases of tangible personal property in the state while retail marijuana is exempt.  Retail marijuana is subject to a 15 percent sales tax, levied on retail sales, and a 15 percent excise tax, levied on the first transfer of marijuana from a wholesaler to a processor or retailer.¹

Tax Exemptions

Medical marijuana is exempt from the 15 percent sales tax and 15 percent excise tax.

Distribution

Via the Old Age Pension Fund, marijuana tax revenue is allocated to the General Fund.²  From the General Fund, revenue from the marijuana retail sales tax and excise tax are distributed differently.

Ten percent of the revenue from the 15 percent tax on marijuana retail sales is allocated to local governments and apportioned according to the percentage of marijuana retail sales occurring within city and county boundaries.  The remaining 90 percent is allocated as follows:

• 71.85% to the Marijuana Tax Cash Fund;
• 15.56% to the General Fund; and
• 12.59% to the State Public School Fund. 

Revenue in the Marijuana Tax Cash Fund is required to be used for health care, health education, substance abuse prevention and treatment programs, and law enforcement.³

The marijuana excise tax revenue is credited to the Building Excellent Schools Today (BEST) Fund.⁴  The BEST Fund is used to renew or replace deteriorating public schools. BEST grants are awarded on a competitive basis annually and funding is prioritized based on issues such as asbestos removal, building code violations, overcrowding, and poor indoor air quality.  

State Comparisons

As of 2021, 18 states and the District of Columbia have legalized the sale of retail marijuana.  The tax rates and tax structure vary.  Washington state levies a 37 percent sales tax while Massachusetts levies a 10.75 percent special sales tax on top of the state's 6.25 percent general sales tax.  Alaska does not have a sales tax but does collect $50 per ounce of marijuana flower sold.

More Information

Additional Information on Marijuana in the state budget is available here
____________________