Federal Marijuana Excise Tax Bill Introduced

At least one Congressman is willing to make a serious effort to reconcile current strict federal prohibition of marijuana with the realities of new marketplaces for legal medical and recreational use in many States. It is encouraging to see some movement on a federal level to institute what many marijuana advocates have claimed for years would be the resultant boon to U.S. revenue from the legalization and decriminalization of marijuana.
Congressman Earl Blumenauer has introduced the Marijuana Tax Equity Act of 2013

Congressman Earl Blumenauer of Oregon has introduced the Marijuana Tax Equity Act of 2013. The bill creates a federal excise tax on the sale of marijuana in states where it is either fully legal or medicinally available. The language of the legislation is meant to reflect a similar regulatory framework that currently applies to alcohol and tobacco.

There are a number of components to the bill, which hopes to set wide parameters in the areas of federal taxes, occupational fees, and legal liability for operating outside of the tax structure. It would impose a 50% tax on the first sale of marijuana from the grower to the distributor, wholesaler or processor. Practically speaking, this tax would most likely fall on the grower. That the largest tax burden would fall on those taking the largest risk – especially considering the oscillating questions of law that could impose other penalties on such individuals – would have an effect on the numbers of growers willing to get into the game of a medical marijuana neophyte state like Massachusetts.

Other players along the supply chain would be forced to pay certain occupational taxes. Specifically, down-the-line importers and producers would be taxed $1,000 per year after obtaining federal permits to engage in marijuana enterprises (if the bill is passed, beginning businesses must obtain a permit within six months of enactment). Other businesses involved in an unspecified manner in legal marijuana enterprises will also face an annual $500 occupational tax.

The legislation also lays out criminal and civil penalties – designed to mirror current tobacco regulation – for those who fail to obtain a permit or comply with the regulation. Distinctions would be made between intentional efforts to circumvent the law – which would carry criminal charges – and simple miscalculations or omissions in making tax payments. Additional “intend to defraud” criminal penalties would be imposed on purchasers involved in the illegal marijuana trade. The legislation does not require compliance by states who do not recognize any form of legal marijuana distribution.

Finally, the bill requires the Internal Revenue Service to study the industry’s market performance and collection of revenue over a span of two, then five years. Results of the study would be brought to Congress, along with recommendations for more efficient oversight.

This bill is intended to be complimentary to the  Ending Federal Marijuana Prohibition Act of 2013 as a framework to remove federal legal restrictions on the states’ ability to regulate and legalize marijuana, either for recreational or medical purposes.

The bill is just the beginning of federal policy that aims to recognize a legal marijuana trade and bring it into the federal tax structure. Considering the recent history of a trigger-happy federal government conducting raids on fully legal state dispensaries, this is only the first of many steps giving some comfort to entrepreneurs aiming to legitimize state distribution of medical marijuana. It is probably not a strong bet that this bill will pass, and marijuana will likely remain illegal by federal standards. But it is at least encouraging that some politicians are looking for reasonable solutions and compromises in these debates. The citizens of most states and nationwide appear interested in relaxing and removing criminal prohibition of marijuana, and the Federal government should not stand in the way of the people.

About David Matson