Medical Marijuana and Sales Tax Issues

Medical marijuana has become a legal product in a number of states. In those states where it can be sold, the issue of sales tax of said sales is one that is reaping revenue benefits.

Medical marijuana is one of those subjects that people tend to have pretty strong opinions about. In some states, such as California, Oregon and Colorado, the voters have spoken and legalized it. This sounds great, but the federal government still considers it an illegal substance, which leads to some serious conflicts. Under the Obama Administration, however, prosecutions are fairly rare.


Those states that have legalized the medical version of the drug are also discovering a big potential benefit. They sale of the drug and the products used to smoke it are taxable. For whatever reason, most states lagged in realizing this and let a lot of potential tax revenue slide. No longer. Most are now enacting laws to tax it, which is generating some much needed revenue.

A classic example is the town of Fruita, Colorado. It is the first town in Colorado to enact a medical marijuana sales tax. The tax rate is set at five percent of the sales price of the drug or any paraphernalia used to inhale it. The town expects to raise $100,000 a year in revenues, which is fairly interesting since nobody actually sells any of it in the jurisdiction. Still, it is a classic example of how municipalities can raise money from the process.



Fruita is hardly the first town to take this approach, but the general act of charging a tax raises an interesting question. Under basic constitutional law, a person can only be punished once for a crime. In the past, states that have charged drug taxes have been found to have taken their one shot at the person with the drugs. There was a well known situation where this happened in Texas. Tax authorities demanded that drug dealers pay a drug tax. Enterprising criminal attorneys advised their clients to do just that and get a stamp. When they were later arrested, the attorneys argued any charges would constitute a second prosecution for the same offense. The courts agreed and a large number of cases were dismissed.

Could the same thing happen when sales tax is charged on medical marijuana? It seems unlikely because the tax is on the sale, not the possession. Still, you can count on an enterprising lawyer making the argument in some case. If he or she is successful, prosecutions related to marijuana could become chaotic. I imagine most jurisdictions facing huge budget problems will worry about that later down the line.

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