HB 2557 to be Amended to Tax Medical Marijuana 100%

I heard a news report on the radio yesterday that quoted Arizona state legislator Steve Farley as saying that HB 2557 will be modified to tax sales of medical marijuana a a mere 100%.  Whoopee!  See Ray Stern’s story called “Medical Marijuana Tax Proponent Aims Lower; State Rep. Steve Farley Now Wants 100 Percent Tax, Not 300 Percent.”

The following is the text of a February 7, 2011, report from the House Ways & Means committee about HB 2557.  The Bill is now sponsored by only three legislators – Farley, Ash, Chabin:

Overview

HB 2557 creates a nonprofit medical marijuana dispensary transaction privilege tax classification and imposes a transaction privilege tax (TPT) and a use tax on dispensaries.

History

Approved by the voters at the November 2, 2010 general election, Proposition 203, known as the Arizona Medical Marijuana Act, allows qualifying patients with debilitating medical conditions to obtain certain amounts of marijuana from nonprofit medical marijuana dispensaries.

TPT is Arizona’s version of sales tax. Under this tax, the seller is responsible for remitting to the state the entire amount of tax due based on the gross proceeds or gross income of the business. While the tax is commonly passed on to the consumer at the point of sale, it is ultimately the seller’s responsibility to remit the tax. Currently, there are 16 different transaction privilege tax classifications that are mostly taxed at a rate of 6.6 percent (except the mining classification) of their respective tax bases.

Use tax is paid by persons who use, store or consume any tangible personal property upon which tax has not been collected by a retailer. Scenarios in which use tax is collected include out-of-state retailers or utility businesses making sales to Arizona purchasers, Arizona purchasers buying goods using a resale certificate where the goods are used, stored or consumed in Arizona contrary to the purpose stated on the certificate, or where a purchase is made in another state and the sales tax or excise tax imposed is less than the Arizona use tax rate.

fiscal impact

A fiscal note prepared in 2010 by the Joint Legislative Budget Committee for SB 1222 (medical marijuana; transaction privilege tax) estimated that annual reported medical marijuana sales in Arizona would be $25,500,000.

Provisions

  • Establishes a transaction privilege tax classification for nonprofit medical marijuana dispensaries, comprised of the business of selling or dispensing medical marijuana to qualified patients.
  • States that the tax base for the nonprofit medical marijuana dispensary classification is the gross proceeds or gross income derived from the business.
  • Sets the tax rate for the tax base at 300 percent.
  • Stipulates that anyone engaged in business as a nonprofit medical marijuana dispensary who sells other tangible personal property at retail must separately account for those sales.
  • Specifies that if separate records of sales of other tangible personal property are not kept, the tax shall apply to the person’s entire gross proceeds or gross income from the business.
  • Excludes the tax revenues collected under the nonprofit medical marijuana dispensary classification from being designated for the statutory distribution base of TPT revenues (A.R.S. § 42-5029).
  • Exempts medical marijuana dispensed by a registered nonprofit medical marijuana dispensary from the TPT imposed under the retail transaction privilege classification.
  • Levies an excise (use) tax on the storage, use or consumption of tangible personal property purchased from a nonprofit medical marijuana dispensary at a tax rate of 300 percent of the sales price.
  • Specifies that for manufactured buildings used in the state but purchased outside Arizona, the tax rate is a percentage of 65 percent of the sales price.
  • Makes technical and conforming changes.

Watch the video of the portion of the February 8, 2011, Ways & Means committee hearing dealing with HB 2557.  Click on the last link on the bottom left.

By |2011-02-10T07:42:30-07:00February 9th, 2011|AZ Legislation, Tax Issues|Comments Off on HB 2557 to be Amended to Tax Medical Marijuana 100%

Arizona Main Stream Media Silent on HB 2557 & the Proposed 300% Tax on Medical Marijuana

HB 2557 (aka the Grow Your Own Pot All Over Arizona Act or the Small Group of Elites Overrules the Majority of the Arizona Voters Act)

On January 26, 2011,  a group of legislators who want to overturn the will of the majority of the Arizona people who voted for Arizona Proposition 203 (legalization of medical marijuana) and who know what is best for the masses introduced a proposed law that would kill Arizona’s medical marijuana industry before it begins and allow all 160,000 future medical marijuana patients to grow their own marijuana.  House Bill 2557 will, if enacted unchanged, impose a sales tax of 300% on all medical marijuana.  That means a $10 THC laden candy bar would cost the patient $40 and an ounce of marijuana that retails for $250 would cost the patient $1,000.

I googled “HB 2557” and marijuana today and found only one story in the first 5 pages of Google results in Arizona’s main stream media about HB 2557.  The Tucson Citizen published a story on January 26, 2011, entitled “Drug Cartel Empowerment Act: Arizona Legislature proposes 300% sales tax on medical marijuana,” which stated:

All I can say is WTF are you thinking?

On January 27, 2011, the Arizona Daily Star published “Medical marijuana sales taxable, Horne says” in which HB 2557 is discussed.  Apparently the paper interviewed one of the bill’s sponsors, Rep. Steve Farley, D-Tucson (phone (602) 926-3022; email address: sfarley@azleg.gov), about HB 2557.   Farley said the tax could bring in as much as $1.8 billion a year and solve Arizona’s deficit problem.  He also claimed that patients would not have a problem paying a total of $160 to buy an ounce of medical marijuana for $40.  This guy appears to be out of touch with reality.  Taxing anything 300% does not generate more sales tax revenue it generates ZERO sales tax revenue.  Is there any item in the U.S. that must be purchased for 4 times its actual value?

My clients who operate dispensaries in Colorado tell me that an ounce of medical marijuana in Colorado sells between $250 – $400 depending on the strain and quality.  For the benefit of the we know what is best for the people of Arizona legislators who think a 300% sales tax will generate revenue, I will do the math and show my work.

Example:  Patient goes to local dispensary to purchase 1 ounce of medical marijuana and decides to buy the cheapest ounce for $250.  Clerk rings up the sale and says “that will be $1,000 please.”  Let’s analyze this sale from the perspective of the Arizona legislators who live in a different world and the perspective of the average guy on the street who may not be as smart as our legislators.

How the legislators  think:  160,000 patients will happily fork over $1,000 to buy one $250 ounce of medical marijuana as just a small part of the patient’s grand plan to purchase 5 ounces per month and 60 ounces a year. Total cost to patient to purchase 60 ounces a year = (60 ounces x $250) $15,000 plus 300% tax of $45,000 = $60,000.  Total sales tax revenue collected annually on medical marijuana purchases by 160,000 patients = 160,000 x $45,000 = $7,200,000,000.   Budget deficit solved with the additional bonus that Arizona will have so much new revenue it can cancel all other types of sales taxes.

How the patients and citizens think:  Are you kidding?  Nobody is going to pay $40 for a $10 candy bar or $1,000 for a $250 ounce of medical marijuana.   All  160,000 patients will grow their own marijuana.  Total sales tax revenue collected by Arizona = 160,000 patients x $0 plus $0 sales tax = $0.  There will not be medical marijuana dispensaries in Arizona.

Some years ago the brains in Congress who also are unaware of the laws of economics passed a luxury tax on yachts.  The idiots actually thought that the rich would be happy to pay the tax and the federal government would collect more revenue.  What actually happened was the rich (who are not stupid) stopped buying luxury yachts, the luxury yacht manufacturing industry died and the federal government collected less money from yacht sales.

Main Stream Media Not Reporting for Duty

Why isn’t the main stream media reporting this story?  Does the main stream media oppose Proposition 203 and want to suppress news of HB 2557 to minimize public opposition to the bill?  Early on the morning of January 27, 2011, I called and emailed an Arizona Republic reporter who has written a lot of stories about Prop 203 and medical marijuana in Arizona.   The reporter responded that he/she would check out my January 27, 2011, article called “Arizona Legislators Introduce HB 2557 to Overturn Voters Approval of Proposition 203.”  No Republic story on the 27th, 28th or 29th, but it did have two  “who cares” stories on the front page of the Saturday, January 29, 2011, online version of the paper called “Valley cities fight unwanted garage-sale signs” and “Economy has 3 Valley chefs down, not out.”

What gives?  Why aren’t the big Arizona papers and TV channels covering this story?

By |2014-05-21T19:46:29-07:00January 29th, 2011|AZ Legislation, Legal Issues, Tax Issues|Comments Off on Arizona Main Stream Media Silent on HB 2557 & the Proposed 300% Tax on Medical Marijuana

Arizona Attorney General Calls for a Tax on Medical Marijuana

Arizona Republic:  “Attorney General Tom Horne opposed a ballot measure to legalize medical marijuana  but now he’s calling for it to be taxed.  State tax collectors say that’s exactly what they plan to do.”

The Republic missed the big story on taxing medical marijuana.  On January 26, 2011, a group of legislators introduced House Bill 2557 (aka the “Don’t Divert Money from the Drug Cartels Act”) that would tax the sale of medical marijuana at the rate of 300 percent.  See “Arizona Legislators Introduce HB 2557 to Overturn Voters Approval of Proposition 203.”

By |2014-01-05T09:52:27-07:00January 28th, 2011|Tax Issues|Comments Off on Arizona Attorney General Calls for a Tax on Medical Marijuana

Arizona Legislators Introduce HB 2557 to Overturn Voters Approval of Proposition 203

The voters of Arizona spoke when a majority approved Proposition 203.  Now a group of elected elites who know what is best for the people of Arizona introduced House Bill 2557 (aka the “Don’t Divert Money from the Drug Cartels Act”) on January 26, 2011, for the sole purpose of killing Arizona’s medical marijuana industry before it begins.  Maybe the goal of the elites is to kill the dispensary industry so that under Proposition 203 nobody will live within 25 miles of a dispensary so all licensed patients can grow their own throughout the entire state.

Yesterday Arizona’s Attorney General Tom Horne issued a press release that said Arizona could impose a sales tax on medical marijuana and he estimated Arizona would collect $40 million in badly needed revenue.  If HB 2557 passes, Arizona can kiss the medical marijuana industry good bye, which means no need for the 125 would be dispensaries to hire thousands of employees, security personnel, growers, transporters and the many other types of ancillary jobs that the industry would generate.

Here is the key language in HB 2557.  It will amend Arizona Revised Statutes Section 42-5010 by adding the following as new subsection A.5 to read:

The tax imposed by this article is levied and shall be collected at the following rates:

THREE HUNDRED PER CENT OF THE TAX BASE AS COMPUTED FOR THE BUSINESS OF EVERY PERSON ENGAGING OR CONTINUING IN THIS STATE IN THE NONPROFIT MEDICAL MARIJUANA DISPENSARY CLASSIFICATION DESCRIBED IN SECTION 42-5077.

HB 2557 will add the following new section 42-5077 to Arizona’s statutes:

42-5077. Nonprofit medical marijuana dispensary classification

A.  THE NONPROFIT MEDICAL MARIJUANA DISPENSARY CLASSIFICATION IS COMPRISED OF THE BUSINESS OF SELLING OR DISPENSING MEDICAL MARIJUANA TO  QUALIFYING PATIENTS PURSUANT TO TITLE 36, CHAPTER 28.1.

B.  THE TAX BASE FOR THE NONPROFIT MEDICAL MARIJUANA DISPENSARY CLASSIFICATION IS THE GROSS PROCEEDS OR GROSS INCOME DERIVED FROM THE BUSINESS.

C.  IF A PERSON WHO IS ENGAGED IN BUSINESS AS A NONPROFIT MEDICAL MARIJUANA DISPENSARY ALSO SELLS OTHER TANGIBLE PERSONAL PROPERTY AT RETAIL, THE PERSON’S BOOKS MUST SEPARATELY ACCOUNT FOR SALES OF THE OTHER TANGIBLE PERSONAL PROPERTY, AND IF NOT SO KEPT THE TAX UNDER THIS SECTION APPLIES TO  THE TOTAL OF THE PERSON’S ENTIRE GROSS PROCEEDS OR GROSS INCOME FROM THE BUSINESS.

If you want Arizona to have legalized medical marijuana, you must tell your legislators to impose a reasonable tax on medical marijuana of 5% – 7%.  Here’s the contact information for the Arizona legislators who introduced this bill (more…)

By |2017-02-11T17:28:53-07:00January 27th, 2011|AZ Legislation, Legal Issues, Tax Issues|Comments Off on Arizona Legislators Introduce HB 2557 to Overturn Voters Approval of Proposition 203