Crafting a Constitutional Marijuana Tax
18 Pages Posted: 22 Nov 2013 Last revised: 25 Jan 2016
Date Written: November 19, 2013
Abstract
Marijuana legalization and decriminalization has become an important policy issue. Roughly twenty U.S. states have partially legalized marijuana (generally for medicinal purposes) and two states – Colorado and Washington – have legalized it for general adult recreational use. Given the likely hyper-growth of the cannabis market in view of the possible wide-scale legalization of marijuana, states might enjoy a potential windfall in their budgets from marijuana taxes.
Marijuana, however, remains a federally controlled substance, the sale or use of which is subject to substantial penalties. For the states, this presents a potential problem in collecting excise taxes on marijuana – namely, if an individual user in a state where marijuana is legal pays an accompanying excise tax, it could be construed as an admission of federal criminal possession of a controlled substance. Similarly, the seller, in collecting the tax, could face potential federal criminal distribution penalties in merely complying with state collection procedures.
This article will present (i) the current constitutional status of marijuana excise taxes and the concomitant applicable Fifth Amendment jurisprudence and (ii) a mechanism to construct an aggregate tax encompassing marijuana, which we believe would overcome any constitutional problems for both buyers and retailers.
Keywords: tax law, excise taxes, marijuana taxes, constitutional law, Fifth Amendment, 5th amendment, excise, tax, tax revenue
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