Marijuana Tax Bills and Lobbying Slog

Here’s an interesting update on marijuana tax legislation in Washington State. Senate Bill 6062 passed the Senate on a close 26-22 vote, supported almost solely by Senate Republicans. SB 6062 changes Washington’s marijuana excise tax by converting it from a 25% tax at each level of the supply chain to a 37% tax at the retail level. More importantly, it changes the taxed party from the seller to the buyer, meaning that the tax money received by the retailer is held in trust for the state, rather than being income and an expense of the retailer. This is key because it means that retailers will no longer have to pay federal income tax on phantom income to the federal government under IRC 280e. The party-line vote doesn’t bode really well for the bill, because the Washington House of Representatives is currently ruled by majority Democrats. Marijuana licensees heavily favored this change, and it should not significantly affect the state’s marijuana tax receipts, so why the inter-party division?

Politics.   Marijuana Politics

Back in January, we wrote about a similar bill — SB 5467. That bill also changed the excise tax to a trust tax of 37% at the retail level. However, SB 5467 also included a gradual decreasing of the tax to 25% by 2019. More significantly, SB 5467 did not change the allocation of state marijuana receipts from that found in I-502. Those receipts were earmarked very specifically:

  • $175,000 to the Washington State Department of Social and Health Services for youth health survey and cost-benefit evaluations;
  • $5,000 to the University of Washington for web-based public education materials;
  • $1,250,000 to the Washington State Liquor Control Board for administration costs;
  • With the remainder going to the following:
    • 15% to DSHS for prevention programs
    • 10% to Department of Health for marijuana education and public health program;
    • 1% to University of Washington for studies on marijuana;
    • 50% to State Basic Health Plan trust account;
    • 5% to Health Care Authority to expand access to health care;
    • 3% to Office of Superintendent of Public Instruction for education purposes;
    • 7% to general fund.

SB 6062, on the other hand, completely changes where marijuana funds go. Under that bill, disbursement would look like this —

  • $6 million to local governments;
  • $5.7 million to the State’s general fund;
  • The remainder to education legacy trust account.

For reference, the state’s last official projections are that marijuana-related tax revenues are expected to range from $25 million to $200 million per year over the next several years.

As expected, most of the commentary on the bill focused on the revenue distribution rather than on the changes to the tax scheme. The substance abuse community does not like the sweeping of funds away from public health. Local government does not feel it is getting enough money. Medical patients want tax relief.

The takeaway from all of this is that Washington’s marijuana industry, and frankly that of every other state, still does not have a sufficiently sophisticated or powerful lobbying apparatus to get what it wants. Say what you will about corporate lobbying, but this sort of bill is where that sort of thing shines. We have an overall change that is widely supported — the trust tax change — yet the bill may fail because of disagreements on where the money should go. There appear to be many avenues toward compromise, but the marijuana industry that should be the main proponent for this change lacks the capability of cultivating that compromise and shepherding through a helpful bill.

If the marijuana industry does not develop a powerful and at least somewhat united voice — in Washington State and elsewhere — it will continue to see its legislative goals falter. SB 6062 passed the Senate, and it may pass the House with some amendments, but it will take inter-party agreement for it to make it the governor’s desk. The industry’s lack of voice and pull is making this less likely.