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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 and requires the state to establish a regulatory structure for the retail marijuana industry.  Amendment 64 also requires the state legislature to enact an excise tax on retail marijuana with the first $40 million 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  In addition to the these taxes, both retail and medical marijuana are subject to the 2.9 percent state sales tax, which applies to the retail sale of most goods and services.  Proposition BB, which was approved by voters in 2015, is a voter-approved revenue change, exempting the 10 percent retail and 15 percent excise tax from the spending limits of TABOR.  The 2.9 percent sales tax on both retail and medical marijuana sales 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.5  Additionally, beginning July 1, 2017, retail marijuana is subject to a 10 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.

 

Tax Exemptions

Medical marijuana is exempt from the 10 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. Revenue in the Marijuana Tax Cash Fund is required to be spent the year after it is collected and used for health care, health education, substance abuse prevention and treatment programs, and law enforcement.3

The greater of first $40 million or 90% of marijuana excise tax revenue is credited to the Building Excellent Schools Today (BEST) Fund.  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.  Any other marijuana excise tax is credited to the Public School Fund.4

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

As of 2018, 10 states and the District of Columbia have legalized the sale of retail marijuana.  The tax rates and tax structure vary.  Washington state levies a 32 percent sales tax while Massachusetts levies a 10.75 percent sales tax.  Alaska does not have a sales tax but does collect $50 per ounce of marijuana sold.

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1Article 28.8 of Title 39, C.R.S.
2Pursuant to Article XXIV, Section 2 of the Colorado Constitution, 85 percent of the revenue from excise taxes (excluding transportation-related excise taxes) is constitutionally required to be credited to the Old Age Pension Fund, which funds a program offering financial assistance and medical benefits to low-income adults aged 60 or older who meet certain eligibility requirements.  The amount of revenue collected from excise taxes well exceeds the amount required to fund the Old Age Pension program.  This excess revenue is allocated to the General Fund for spending on general operations at the discretion of the General Assembly.
3Section 39-28.8-203, C.R.S.
4Section 39-28.8-305, C.R.S.
5Section 39-26-729, C.R.S.
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