• Colorado: Constitutional Quirk Triggers Retail Marijuana Sales Tax Holiday
  • September 4, 2015 | Authors: David H. Godenswager; David M. Kall; Susan Millradt McGlone
  • Law Firm: McDonald Hopkins LLC - Cleveland Office
  • Under House Bill 1367, signed into law in early June, Gov. John Hickenlooper approved a ballot question that will go before the voters this fall seeking their permission to keep the pot taxes that have been collected this fiscal year.

    According to the Colorado Department of Revenue’s (CDOR) Retail Marijuana Tax Reduction Notice, about $58 million is in play. Of this, $27.7 million is a transfer from the Marijuana Tax Cash Fund, and $30.3 million is from the General Fund.

    If voters approve the ballot issue, HB 1367 apportions the refund for expenditure during fiscal year 2015-16 as follows:
    • $40 million to the Public School Capital Construction Assistance Fund, known as the BEST Fund
    • $12 million to the Marijuana Tax Cash Fund and appropriated for fiscal year 2015-16. Of this amount, $1 million is allocated to the Department of Local Affairs for grants under the Local Government Retail Marijuana Impact Grant Program
    • $6 million to remain in the General Fund
    If voters reject the ballot issue, the bill establishes mechanisms to refund the account to taxpayers in three different ways:
    1. For tax year 2015, $25 million will be refunded with the Taxpayer Bill of Rights surplus that the state expects to incur in fiscal year 2014-15.
    2. An amount equal to the fiscal year 2014-15 marijuana excise tax revenue, currently estimated at $19.7 million, will be refunded directly and automatically to marijuana cultivators, such that they will not need to apply for the refund. 
    3. The state will refund the rest, approximately $13.3 million, by way of a temporary marijuana special sales tax rate reduction, from 10 percent to 0.1 percent, beginning Jan. 1, 2016. Thereafter, additional systems are in place to determine whether the required amount of revenue has been refunded.
    Beyond this, beginning Jan. 1, 2016, each local government's share of marijuana special sales tax revenue is to be reduced by half, from 15 percent to 7.5 percent. The share will remain at 7.5 percent until the dollar amount by which the local share is reduced equals the share apportioned to the local government during fiscal year 2014-15. The aggregate amount of special sales tax revenue apportioned to all local governments for fiscal year 2014-15 is expected to be $5.7 million.

    For each of the fiscal years 2015-16 through 2018-19, General Fund transfers of retail marijuana special sales tax revenue to the Marijuana Tax Cash Fund are reduced by $6.06 million to partially repay the $30.3 million deposited from the General Fund to the refund account.

    Independent of whether voters approve the ballot issue, HB 1367 enacts a marijuana sales tax holiday on Sept. 16, 2015, and other tax benefits in subsequent years. Specifically, HB 1367:
    • Lowers the retail marijuana excise and special sales tax rates to zero, effective Sept.16, 2015, and raises them back to 15 percent and 10 percent, respectively, effective Sept. 17, 2015.
    • Lowers the retail marijuana special sales tax rate from 10 percent to 8 percent beginning July 1, 2017. 
    • Repeals current law requiring the finance committees of the General Assembly to review tax rates by April 1, 2016. 
    • Transfers any marijuana excise tax revenue collected in excess of $40 million during a single fiscal year to the Public School Fund rather than the Marijuana Tax Cash Fund. 
    • Broadens the purposes for which funds in the Marijuana Tax Cash Fund can be expended and requires the Marijuana Enforcement Division to report on its website how tax revenue is spent. 
    • Creates a Local Government Retail Marijuana Impact Grant Program in the Department of Local Affairs.
    The constitutional quirk stems from the state’s Taxpayer Bill of Rights, which obligates Colorado to refund taxes if the amount raised exceeds estimates, explained Westword. Gov. Hickenlooper referred to this as a “fiscal glitch,” from which the state will lose approximately $100,000 on Sept. 16.