States face balancing act with marijuana tax rates, says analyst

Analyst Jamie Yesnowitz said Friday that some states that have legalized marijuana sales face a tough balancing act when determining how to tax the drug.

“Picking the tax rate is important here," Yesnowitz, a principle at consulting firm Grant Thornton, told Hill.TV’s Jamal Simmons and Shermichael Singleton on “Rising.”

“For example, the marijuana taxes that have come into being over the last few years — it’s high, double-digit tax rates and the question becomes whether those rates are too high,” he continued.

The tax analyst said that if pot is over-taxed, it could lead to the development of black markets and cause marijuana venders to take their business elsewhere, potentially hurting local economies.

Even though it remains prohibited under federal law, 10 states and Washington D.C. have legalized marijuana for recreational use for adults 21 and older. Medical marijuana is legal in 33 states and D.C.

Marijuana sales, however, are only legal and taxed in seven states, including Alaska, California, Colorado and Washington. According to the Tax Policy Center, these rates can range anywhere from 10 percent to as much as 37 percent in states like Washington.

“Over the last several years we’ve seen the new wave of sin taxes — things like taxing marijuana, taxing sugary beverages, bag taxes so you’re really seeing that the concept of what a sin tax actually is has kind of expanded over time,” Yesnowitz said.

Similar to other sin taxes on products such as cigarettes or alcohol, states that have marijuana taxes use the revenue to fund various health care or educational programs.

But Yesnowitz noted that this practice wasn’t always the case, saying revenue generated from sin taxes was originally used to help curb what states perceived as “bad behavior.” He said these sales taxes were also used to bring in additional revenue during times of crisis like war.

“A lot of the wars were financed by liquor taxes and later on you saw tobacco taxes coming into being and then more recently gambling taxes, taxes [on] lotteries you can consider that a tax as well,” he said.

Yesnowitz’s comments come as the legalization of recreational pot continues to gain nationwide support. Sen. Ron WydenRonald (Ron) Lee WydenTech critics on both sides have it wrong: Section 230 is not a special privilege Democrat: Treasury 'acknowledged the unprecedented process' in Trump tax return rejection Hillicon Valley: Twitter says Trump 'go back' tweet didn't violate rules | Unions back protests targeting Amazon 'Prime Day' | Mnuchin voices 'serious concerns' about Facebook crypto project | Congress mobilizes on cyber threats to electric grid MORE (D-Ore.) last month introduced legislation that would legalize pot on a federal level. The bill also includes what it calls a Small Business Tax Equity Act, which would prevent small marijuana businesses from being taxed unfairly.

—Tess Bonn