Colorado Cannabis Taxes

The Colorado Department of Revenue (“Department”) recently addressed common tax questions for participants in the state’s new green economy. Specifically, the Department’s website offers guidance to four key stakeholders: Local GovernmentConsumers, Cultivators and Retailers.

Consumers. When speaking of taxes, a great deal of press has been focused on cultivators, growers, processors, retail sellers and health care professionals. Not much has been written about taxes from a consumer perspective.

In Colorado, retail consumers pay the state sales tax of 2.9% plus any local sales taxes plus an additional 10% state marijuana sales tax.  However, retail consumers are still absorbing a 15% Retail Marijuana Excise Tax. Colorado imposes a 15% excise tax on the first sale from the cultivator to the retail manufacturing facility, retail store or another cultivator facility. The cultivator is liable for the tax.  However, the retail marijuana store will include this excise tax in its consumer sale price similar to liquor or tobacco.

Medical marijuana is not subject to the 15% excise tax. What this means is that no Colorado tax is embedded in the sale price of medical marijuana purchased from a medical marijuana center. Nonetheless, consumers of medical marijuana will pay the 2.9% state sales tax plus any local sales taxes on the consumers purchase.

Local Government. The Department clarified the distribution of tax revenue to local governments. With respect to retail marijuana sales tax, local governments receive 15% of the retail marijuana sales tax revenues. For example, local governments would share $1.5 of tax revenue for every $100 sale ($100*10%*15%). The city or town share is apportioned based on the percentage of sales tax revenue collected within the boundaries of the city or the town. Counties will not get a percentage of sales tax revenue unless there is a retail marijuana store in an unincorporated area. The 15% excise tax goes to construction of Colorado public schools.

Most interesting is the Department’s acknowledgement of the newsworthiness of the amount of marijuana retail sales generated in Colorado. However, the Department cautions disclosing sales information can jeopardize the confidentiality of taxpayer information.  Specifically, the Department reiterates Regulation Section 39-21-113 that “every tax return and all information therein contained together with correspondence, papers, affidavits, assessments, protests and hearings are secret and confidential and no information relating thereto can be disclosed…” Disclosure is allowed in some circumstances, but is the exception not the rule.

The Department sets out its own policy guideline for releasing sales tax information. Specifically, the Department only release sales tax information if there are three or more vendors and any one vendor does not constitute more than 80% of the total sales tax number.  The Department encourages that local governments adopt a similar policy. For those jurisdictions that have a single marijuana establishment the Department states that no information may be released. Finally, the Department reminds local jurisdictions of the requirement to execute a MOU (Memorandum of Understanding) with the state regarding the control of confidential data.

Cultivators. The Department clarifies three key areas.  The first area is the computation of the Retail Marijuana Excise Tax. The excise tax is equal to 15% of the average market rate of retail marijuana. The average market rate for 2014 is summarized below.

Retail Flower Rate

$1,876/pound

Retail Trim

$296/pound

Retail Immature Plant

$9/plant

The second area is the requirement for a Surety Bond to be filed with the Department. This is in addition to any bond that is already filed with the Marijuana Enforcement Division.

The third area is in regard to filing and paying tax. Taxes are filed electronically; paper forms are not available on the website and will not be mailed to Cultivators. A return must be filed even if no sales were made or if no tax is due for the period. In such case, a Cultivator must file a “Zero” tax return. In general, it is a best practice to file a Zero tax return as such filing in most state jurisdictions begins to run the statute of limitation on tax assessments. Even if no tax is due, the failure to file a return grants a state unlimited time to assess tax, penalties and interest.

Finally, the Department clarifies that payment of tax may be made online via Electronic Funds Transfer or in cash, check or voucher.  Payments made by credit card or e-check will display as Co. Dept. of Revenue Colorado.govNo information regarding the type of tax is sent to the bank or to the credit card company.

Retailers. Similar to the guidance provided to Cultivators, the Department clarifies the registration, reporting and collection responsibilities of the retailer. First, the Department clarifies that a sales tax license is required for each type of marijuana sold (medical and retail). A separate license is required even if medical and retail marijuana is sold at the same location. Second, the Department clarifies that sales tax must be separately stated on the receipt.

Retailers have two separate reporting requirements. The 2.9% sales tax is reported on the Retail Sales Tax Return using the same account number as listed on the sales tax license. The 10% additional Marijuana Sales Tax is reported on the Retail Marijuana Sales Tax Return. Medical Marijuana sales are reported on the Retail Sales Tax Return and filed under the account number that matches the sales tax license for medical marijuana. Department guidance regarding payment of tax as well as filing Zero returns is the same as for Cultivators.

The State of Colorado continues to be at the cutting edge of regulating an integrated medical and recreational marijuana marketplace.  The Department understands that tax compliance and administration is a crucial component to legitimizing this new marketplace. The Department should be commended for reaching out to stakeholders to provide such guidance.