State of Washington’s Senate, by a vote of 26-22 (Senate Bill 6062), has moved to lower recreational marijuana taxes with a switch from excise to retail sales tax.
Under the state’s current recreational marijuana excise tax system, the end user was being passed along embedded excise taxes that was approaching 75% of purchase price. The diagram below illustrates the marijuana excise tax structure, as well as the new retail sales tax, and the impact it has on the final price paid by the end user.
Such exorbitant excise taxes are unsustainable as has been proven. This is especially true where there is already an existing underground economy for the product (marijuana). Legality certainly is the main factor in driving a change in behavior from buying illegally to buying from a legally licensed dispensary; however, there will be a level of price resistance that obviously increases with cost. And when a consumer if presented with paying almost 75% more for the same product, many are going to choose to remain in the underground economy.
The switch to one retail sales tax for recreational marijuana transactions should result in a multitude of benefits for Washington state:
- Lower overall price to consumer
- Increase participation in the legal marijuana economy vs the underground economy
- Increase total tax revenues
- Lessen the paperwork and compliance requirements for the cannabis industry
- Greater transparency in the total tax paid by the end user
The Senate Bill 6062 now heads to the House for consideration.