Concerns have been raised that a proposal by Gov. John Hickenlooper to raise marijuana taxes would divert sales to the illegal market.
It’s an interesting theory, considering the governor’s office has made curbing so-called “gray” and “black” market sales a priority.
Former state Sen. Pat Steadman, D-Denver, who led much of the effort around Proposition AA four years ago to levy marijuana taxes, said the governor’s office might want to think twice about raising marijuana taxes if it plans on making a dent in illegal activities.
“It seems kind of odd that at the same time they’re trying to do something about the black and gray markets they’re going to ratchet up the taxes and drive more people to the black and gray markets,” Steadman said.
Hickenlooper on Tuesday proposed increasing the special sales tax on adult-use recreational marijuana to 12 percent in the fiscal year that begins in July. The tax was scheduled to fall to 8 percent in the upcoming budget, from where it stands now at 10 percent.
The need for the amended budget request to the legislature comes as state budget writers must fill a more than $135 million school funding hole triggered by the constitutional Gallagher amendment, which divides the state’s total property tax burden between residential and commercial property.
Because residential values have grown faster than commercial values, the residential property tax assessment rate is lower, which results in cuts to residential property taxes and less money for schools, which heavily rely on the property taxes. The residential assessment rate will drop from 7.96 percent to 6.56 percent. Residential tax collections could drop by nearly 18 percent.
Meanwhile, the state must restore those cuts to local schools, and the reduction could remain without voters raising the assessment rate in the future.
The proposal to raise the marijuana tax to 12 percent would raise about $42 million, according to the governor’s budget office.
The office also proposes to cut the Senior Homestead Exemption by half in the upcoming budget, which would generate about $68 million. The property tax exemption is available to senior citizens.
Instead of being able to reduce property taxes on a primary residence by exempting 50 percent of the first $200,000 in market value, seniors would only be allowed to claim the exemption on the first $100,000.
Hickenlooper’s office says without the changes, the school funding “negative factor,” or the gap in mandated full education funding, would grow to more than $982 million, compared to $876 million in the governor’s original budget request submitted in November.
Proposition AA set the special sales tax at 10 percent. But it allowed for the legislature to lower it and adjust the rate up to 15 percent without having to go back to voters for approval.
The special sales tax was intended to be used to enforce regulations of the retail market and other costs related to implementation of legalization.
The initiative also set a 15 percent excise tax, which also can be similarly adjusted. The first $40 million of revenue from the excise tax was earmarked for school construction.
Voters overwhelmingly backed the taxes in 2013, with 65 percent supporting Proposition AA.
House Speaker Crisanta Duran, D-Denver, said she is open to taking a look at raising the special sales marijuana tax.
“We think it was a good step forward to identify some different ideas,” Duran said. “We’re looking at a variety of different options and we’ll continue to work on that issue. It’s a top priority.”