Colorado's Marijuana Money Going Up In Smoke

Transcript

INDIRA LAKSHMANAN, HOST:

Colorado voters overwhelmingly supported state taxes on marijuana, and the state collected tens of millions of dollars in the first year of legalization. But in a strange twist, all those taxes raised from pot may have to be refunded because of a quirk in the state's constitution. That means money earmarked for schools and drug prevention programs could be lost unless lawmakers agree on a solution. Colorado Public Radio's Ben Markus reports.

BEN MARKUS, BYLINE: Whether it's pre-rolled joints, vaporizers or brownies, every purchase at Colorado Harvest Company in Denver gets 22 percent in taxes tacked on. It's an expense that customer Jason Swart doesn't mind paying.

JASON SWART: I don't think it's that bad, you know, like, just for the convenience of being able to come in and go to a store and, you know, the selection I think is well worth it. I think it's great.

MARKUS: A chalkboard on the wall lists dozens of marijuana strains for sale. A nearby refrigerator holds pot-infused candies and beverages. Swart is new to Colorado. He just moved here from Kansas. But he recognizes that marijuana taxes help the state.

SWART: Yeah, as far as I know, it goes to good things, you know, school roads, you know. I know we got a lot of potholes and stuff so hey.

MARKUS: Legalize it and tax it. That was the mantra of the pot movement in Colorado and one of the big reasons voters approved legalization. But now thanks to a provision in the state constitution known as the Taxpayer's Bill of Rights, all of the tax money must be given back. It's a bizarre turn of events that's taken many by surprise.

TIM HOOVER: Yeah. No, I mean, this is an Orwellian type of situation.

MARKUS: Tim Hoover is with the left-leaning Colorado Fiscal Institute. Here's the problem - the Taxpayer's Bill of Rights requires the state to ask voters to approve any new taxes. When doing so, the state must estimate the money the tax would raise and estimate the overall tax collections without it.

HOOVER: So if you're wrong on either of those things, if in fact there's more revenue, then you've got to refund all of the new revenue from that new tax.

MARKUS: All of it.

HOOVER: All of it.

MARKUS: And that's exactly what ended up happening. State revenues came in higher than estimated because the economy here is strong, in part due to the energy industry. Hoover says, ironically, the pot tax money must be given back even though pot taxes themselves have been disappointing.

HOOVER: There is no bonanza of pot sales. You might call it a low-nanza. It's less - well less than what was projected. And the refunds are being caused by legal fine print in the Taxpayer's Bill of Rights.

MARKUS: The state has a few options to give the money back - about $60 million. It can hand out a small refund to everyone who pays income taxes, or it can reduce pot taxes to zero for a year, which Democratic State Senator Pat Steadman argues would jeopardize drug prevention and treatment programs and money earmarked for schools.

SENATOR PAT STEADMAN: And so to turn off the tax now or to pull back from our commitment to those programs now, I think is really the wrong course.

MARKUS: Instead, he's proposing a bill with bipartisan support that would again go to voters and ask them to allow the state government to keep the pot tax money it's collected.

STEADMAN: Having the taxes in place is part of making this whole experiment with legal marijuana work.

MARKUS: Back at Colorado Harvest Company, CEO Tim Cullen agrees with that approach. Sitting in his office filled with boxes of tax receipts for an IRS audit, he says he actually supports keeping the state taxes in place, even though he knows fewer taxes would equal more sales.

TIM CULLEN: I think cannabis owners in Colorado are probably some of the only business owners in the country that are really excited to pay taxes. And we are, and we do, and we contribute a significant amount of money.

MARKUS: That, he says, goes a long way to legitimizing the industry. For NPR News, I'm Ben Markus in Denver. Transcript provided by NPR, Copyright NPR.