Next Sin Tax: So Far, Marijuana Results in $1.24 Million for Colorado

March 4, 2014 | By: TaxCure Staff

colorado tax revenueOne of the biggest stories of the new year is that Colorado started allowing the sale of marijuana for recreational purposes on January 1, 2014. Some states allow the sale of marijuana for medical use, but only Washington and Colorado allow it for recreational use.

Among the reasons that some states are considering allowing for legal marijuana use is the ability to tax it. Some countries already have sin taxes, and marijuana could be added to the list of vices taxed at higher rates. Tobacco and alcohol already carry extra taxes in most states, and, in Colorado at least, there is a tax for purchasing marijuana.

Colorado Sees an Extra $1.24 Million in Revenue for First 27 Days

According to a story from NBC’s Today show, Colorado added an extra $1.24 million in tax revenue during the first 27 days that the law was in effect. This only includes 18 retailers who offered to share their proprietary data with NBC. Once the revenue from other pot retailers is added in, the numbers might be higher.

However, the retailers think that number is likely to be the lowest of the year since there were issues with obtaining licenses on the local and state level. In some cases, retailers were only actually able to sell marijuana for four days out of the first month. That means that things are likely to change in February and going forward. Some think that Colorado could see increased revenue of $100 million from recreational marijuana sales in 2014 — which is much more than the estimated $67 million expected for the first year.

What Extra Taxes Do Marijuana Consumers Have to Pay?

There is a standard sales tax of 2.9 percent in Colorado, and all pot sales are subject to that tax. However, there is also a special state sales tax and a state excise on the pot. On top of that, municipalities can add their own sales and excise taxes on top of it. In some cities, that means that customers are paying as much as 29 percent of their pot purchases in taxes.

That’s a pretty hefty amount, but many people also pay rather high taxes when they buy cigarettes or alcohol. Adding marijuana to the roster of substances that can be taxed at “sin tax” rates is one way for state governments — many of which are still struggling from the effects of the recent recessions — to boost their budgets.

Consumers Willing to Pay Sin Taxes

The reason that so many states turn to sin taxes has to do with the fact that many consumers are willing to pay them. They don’t affect the entire population; rather, these sin taxes only impact the people who engage in activities that are sometimes frowned upon. Plus, it helps that many of the items that attract sin taxation are addictive. It amounts to a guarantee that consumers of these products will be back for more — and they can keep paying the taxes.

It’s something to think about. As states watch to see what happens in Colorado (as well as in Washington), we might see more state governments open to the idea of allowing the sale of recreational marijuana in order to pad their coffers.