Dear Pot Lawyer,
I pay a lot of tax for this weed I’ve been buying! Are we doing this right?
I think we are, but it’s complicated, and smarter people than me have strong opinions on how it ought to work. These opinions differ on big-picture questions, like who should pay the tax (you, or someone on the supply side), whether we should tax medical marijuana, what the IRS should be doing, and what we hope to accomplish with a pot tax in the first place. But first, let’s talk about your situation.
Oregon has decided that you and your friends should pay the pot tax, rather than someone further up the supply chain. Today, you pay a 20 percent impost on flower, edibles, concentrates, and everything else. The first 17 percent goes to the state, and a 3 percent kicker goes to the local jurisdiction. That kicker could jump to 8 percent soon, if House Bill 2204 becomes law. Many people feel that a 25 percent sales tax is outrageous; let me give you three reasons why it could happen.
First, although Oregon hates sales tax, it loves taxing weed. In November, we had 111 statewide ballot measures, each of which proposed a 3 percent tax on local dispensary sales. All of them passed. Second, Oregon’s weed sales tax is actually sort of low, as far as these things go. Washington, for example, taxes pot sales at a brutal 37 percent. And third, the current 20 percent rate hasn’t made an appreciable dent in the black market. Policymakers are betting that the answer is increased enforcement, not less tax.
If a 25 percent sales tax sounds nasty, know that your shopkeep pays an effective income tax rate of 50 to 70 percent, depending on how honestly and aggressively she files. This is due to a rule called IRC 280E, enacted by Congress in 1982 in response to a famous tax court ruling. In that case, the court allowed someone named Jeffrey Edmondson to deduct the costs of 1,100,000 amphetamine tablets, 13 ounces of cocaine, 100 pounds of weed, and miscellaneous expenses (like gas) for shuttling drugs betwixt Minneapolis and San Diego. Congress disliked that sort of thing, and now your poor weed store is paying the price.
As the store earns greater profits, it will also pay a greater percentage of tax. We call that matrix “progressive.” The 20 percent sales tax you are paying, by contrast, is regressive. This means the tax takes a higher percentage of your income than it does from higher earners when they buy weed. That feels unfair, but it’s the nature of sales tax, generally.
If you really want to avoid paying sales tax, you have options. First, unlike Washington, Oregon allows you to grow at home. Second, if you qualify for a medical card (not too difficult), your shop probably still sells medical cannabis, and those sales aren’t taxed. The third option, of course, is to buy untested weed from unlicensed sellers, and mess things up for everyone. It’s better to pay the tax.
Got a question? Email us at email@example.com. And remember that if you have a legal problem, contact a lawyer! Our educational musings cannot be relied upon as specific legal advice.