Prop 64 Tax Mistake Could Cost California Millions of Dollars

Political Connection
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SACRAMENTO -- A technicality in the language of Proposition 64, which legalized recreational marijuana in California, could end up costing the state millions of dollars by some estimates and exempt medical marijuana users from paying sales tax on pot for a matter of months.

All across California medical marijuana patients who have a valid, state issued ID card no longer have to pay sales tax because a tax exemption meant to kick in in 2018 actually took effect when the initiative passed on Election Day.

"It's very easy to drop a date,” said Keith Humphreys, a professor at Stanford University. "I certainly didn't blame the people involved. I think it's a good faith mistake."

It was brought to his attention that Proposition 64, which legalizes recreational pot, states in 2018 recreational pot smokers will pay a 7.5% sales tax and a 7.5% excise tax.

For medical users though, the state drops that sales tax altogether once the excise tax kicks in. That change is not supposed to start until 2018. The proposition never specifies that, however, which means today patients don’t have to pay it.

"I'm actually looking forward to patients not pay sales tax,” said Lanette Davies, Director of Cannacare, a Sacramento dispensary.

Davies says from January to September, her dispensary alone collected $130,000 in sales tax for the county and state –money California could lose if patients don’t have to pay it.

"I would love to see that in my patients pocket instead of the state's pocket. I'm sorry I would,” Davies said.

"Prop 64 was designed to help the state make money,” said Jason Kinney, spokesman for the Proposition 64 campaign.

Kinney says there was no mistake. Rather, state officials who think patients shouldn’t pay sales tax until 2018 are interpreting the proposition too literally.

“I strongly disagree with it," Kinney said. "It’s a too little and erroneous interpretation.”

While some estimates say the state could lose tens of millions in tax revenue, Kinney thinks that number is only in the hundreds of thousands, because the number of medical marijuana users who have state issued ID cards is only a few thousand.

Kinney, along with the board of equalization which handles marijuana tax money, are already working to fix the issue.

“It was our understanding and belief, as well as the drafters [of Proposition 64], that once the excise tax kicked in starting in 2018 for recreational users, only then would there be a break, a sales tax exemption, for medicinal card holders so they would be more able to afford medical cannabis,” said Fiona Ma with the Board of Equalization.

"We're not arguing anymore about whether marijuana is legal or not. It is," Humphreys said. "So now it's a question of making it work.”

He too hopes California finds a way to collect, adding it would be a shame if the state loses out on potential marijuana revenue because of a technicality.

To correct the problem, there is language in Proposition 64, according to Kinney, that would allow two-thirds of the state legislature to amend the issue.

Kinney says he’d prefer to see state officials make a ruling on the original proposition’s intentions and interpretation, something he believe would yield a result allowing the state to continue collecting sales tax from all medical marijuana users.

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