Taxing marijuana

Pot Taxes May Not Be Such a Cash Cow Due to, Well, the Cash

I was originally going to talk about how Colorado's pot tax revenues are in trouble due to federal laws restricting banks from accepting drug money but the best part of the Fox article I planned to link to is actually this part: “The large cash deposits smell like marijuana, so some of the businesses are […]

Prop 19 May Not Be Such a Great Way To Bring In California Tax Revenues After All

While California legislators may be licking their lips at the thought of taxing marijuana – should California voters go all in on Prop 19 next month – a new RAND Corporation paper points out that the revenue impact on Mexican gangs could make much less of a bang than assumed by Prop 19 proponents.

The reasoning behind 19 is simple: California prisons are already packed with all sorts of shady individuals and locking up small-time pot dealers with murderers, gang-bangers and child molesters really only creates a criminal factory that costs our already broke state way too much money. Eliminating a large chunk of the criminality surrounding pot frees up correctional resources to put rverts and killers. So far that makes sense.

Legalizing marijuana also gives our sneaky little legislators the chance to tax the shit out of a multi-billion dollar business; they have already done this in cities like Oakland where pot dispensaries are limited and closely watched by TPTB to assure they get their cut. Implement this state-wide and maybe we won’t be so desperate to get into selling our stuff off and mailing out IOUs instead of actual money.

Or were we totally high when we came up with revenue estimates that promise $1 billion in extra cash for the state?


The RAND paper argues that California accounts for 1/7th of marijuana consumption in the U.S., much of which is grown, cultivated and sold here in the state. That isn’t money that will be taken out of Mexican drug traffickers’ pockets if Prop 19 passes as we Californians are already weed snobs and don’t smoke the Mexican garbage. What we have is a large black market subsidized by semi-legal pot funneled through dispensaries. Some locales tax it while others don’t under current rules and it appears as though Prop 19 leaves the same door flapping wide open in the breeze. Not exactly the big tax boom we’d hoped for.

Opponents argue that legalization of marijuana will actually backfire as the free market price of an ounce could drop to $38; great if you’re the one buying but not so great if you’re the one trying to make money off of your crop and now forking over taxes to the state.

Is there anything in Prop 19 that would actually require growers and buyers to bypass the underground market they have known for so long and give their share of taxes to the state? Not as far as I can tell.

Think of it this way: if the state suddenly started taxing soda at 10 cents a can and you knew a guy in your neighborhood who happened to be sitting on a stockpile of Pepsi, why on Earth would you go to the store and pay the additional 10 cents a can when you could simply unload a case or two from your neighbor at a lower price? The difference being there’s already a black market for pot and introducing consistent tax issues into the matter is certainly not the way to legitimize said black market.

Governor Schwarzenegger has already signed a bill into law that makes possession of less than an ounce an infraction ($100 fine) while SFPD cops are already taught to ignore casual pot smoking on San Francisco streets (just like everything else they ignore including defecation and rampant dysfunctional drug use) so why 19?

I don’t have an answer for that. On the surface Prop 19 seems to be a no-brainer but like any other piece of California legislation, it’s all in the implementation and I don’t believe our state can pull off the tax revenue payday they are banking on should California voters vote yes on November 2nd.

Or maybe all the stoners will stay home and get high on Election Day instead, having already decided this is a bad idea and not at all what it seems to be at first glance.

Accounting News Roundup: IRS Probing HSBC Clients with Accounts in Asia; Saints Deny State Money Was Taxable; Pot Tax Helps Helps Another California Budget | 07.07.10

HSBC Clients With Asian Accounts Said to Face Probe [Bloomberg BusinessWeek]
“The Justice Department is conducting a criminal investigation of HSBC Holdings Plc clients who may have failed to disclose accounts in India or Singapore to the Internal Revenue Service, according to three people familiar with the matter.

‘This is a global initiative by IRS and the Department of Justice,’ said Robert McKenzie, an attorney at Arnstein & Lehr in Chicago who said he spoke to two people who got letters.

The probes show how the U.S. is expanding its crackdown on offshore tax evasion beyond Switzerland and UBS AG, the largest Swiss bank, sa tax lawyer at Greenberg Traurig LLP in New York. London-based HSBC is Europe’s biggest lender by market value.

‘It’s clear that the IRS and the Department of Justice are intending to pursue other depositors outside of Switzerland,’ Kaplan said. ‘They’ve announced it before, and they are moving forward in that regard.’ ”

A.T. Kearney, Booz Call Off Merger Talks [WSJ]
“A.T. Kearney Inc. and Booz & Co. called off discussions about a possible merger that would have given the two midsize firms greater scale in a highly competitive industry.

The two have flirted with each other multiple times over the years without completing a deal. The most recent talks occurred on and off over the past six months, says a person familiar with the matter.

The combined firm would still have been smaller than market leaders such as Deloitte LLP, McKinsey & Co. and Accenture Ltd in an industry where scale is increasingly important in wooing global business.”


Did Tax Ploy Help Saints Win Super Bowl? [Forbes]
If you feel so inclined, you could probably blame this on Reggie Bush but otherwise it’s probably due to some clever tax attorneys, “In a just-filed U.S. Tax Court lawsuit, the partnership owning the Saints acknowledges that it didn’t treat an $8.5 million annual payment from the state of Louisiana as income and therefore didn’t pay taxes on the sum. Rather, the team said the money was an addition to “working capital” and a nontaxable transaction.

The Internal Revenue Service insists the money should have been included in income by the franchise, owned for a quarter-century by auto dealer Thomas M. Benson Jr. The Tax Court case challenges that position.”

Pot Tax Helping Long Beach Plug Budget Deficit Faces Vote in California [Bloomberg]
“The city council of Long Beach, California, voted last night to pursue taxes on medical marijuana dispensaries, part of what may become a wave of communities turning to such proceeds to plug budget deficits.

The Los Angeles suburb with a population of almost 500,000 scheduled a public hearing on the drug levy for Aug. 3. If the council later approves the wording, a ballot initiative establishing a 5 percent tax on the city’s 35 dispensaries could go to voters in November, according to Lori Ann Farrell, Long Beach’s director of financial management.”

IRS Disbars CPA for Relying on Client’s Income and Expense Numbers [Tax Lawyer’s Blog]
How much due diligence should a tax preparer perform to be comfortable with their clients numbers?

Ex-Qwest Accountant Says SEC Should Be Sanctioned [CBS4]
“The SEC has said [James] Kozlowski hasn’t shown that it acted in bad faith. It has accused him of ‘theatrical conduct,’ including filing ‘numerous losing motions.’ Kozlowski’s attorneys dispute that.”