State News
November 21, 2018

Advisory panel to recommend 26% tax on cannabis sales

By Kit Norton/VTDigger

The subcommittee on taxation and regulation will be recommending to the Governor’s Marijuana Advisory Commission that the state adopt the highest tax rate on recreational cannabis currently in New England.

It will be recommended to the the full committee next month that Vermont adopt a 26 or 27 percent tax rate on cannabis sales – Massachusetts has a tax rate up to 20 percent and Maine has a 10 percent state retail sales tax, according to the drafted document.

The report, drafted months of subcommittee meetings, is still being finalized ahead of the mid December deadline,  at which time it will be submitted to the full committee and then to Gov. Phil Scott.

The proposed tax structure includes a 20 percent cannabis retail excise tax, the 6 percent state sales tax, and a 1 percent local option sales tax – if municipalities authorize the local option.

The draft also outlines how the 26 percent tax would only apply to retail sales, not to wholesale transactions between licensed establishments.

Legislators may disagree with this proposed tax rate when they are bound to dissect it this coming session.

In a recent interview with VTDigger, Rep. Brian Smith, R-Derby, said he was in favor of taxing a legal cannabis market, but that he would be in favor of levying a “large” tax rate on retail sales in order to push for lowering property taxes moving forward.

The tax rate was chosen by the committee as a way to “eradicate” the illicit cannabis market “to the greatest extent possible,” according to the report.

The report stresses that the price, and tax rate, of regulated cannabis products should be competitive with illicit market prices in order to incentivize customers to pay taxes and support licensed retail shops.

There was concern in the report that price fluctuations in the new legal cannabis market could affect state revenues with this tax structure, and that there would be further research into revenue estimates and market performance.

Looking at data from eight other states that have legal markets, the report said that the prices of legal cannabis products dropped precipitously in the first few years of legal sales, but despite the downward trend in prices, state revenues continued to grow.

While it is still unclear how much state revenue cannabis sales will bring to the state, the report outlined how it must bring in enough to cover the administrative cost of setting up the legal market.

The Agency of Agriculture, the Department of Taxes, and the Department of Public Safety all submitted budget estimates for setting up administrative programs for the first three years — 2020-2022 — of the legal market.

The Agency of Agriculture estimated it would need $1.1 million and the Department of Taxes budget would just over $2 million. The Department of Public Safety requested around $4.6 million, but the largest estimate was for education and prevention programs in public schools.

That budget, which would cover education on cannabis use and “prevention strategies,” was estimated to be between $8 million to $12 million, according to the report.

The report also recommends the start date for retail sales be begin 18-24 months after recreational marijuana sales are legalized.

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