State governments across the nation are legalizing recreational marijuana. Pot is legal in 19 states and voters in 5 more states will decide on legalization in November. Every state that legalizes needs to think carefully about the appropriate tax structure to apply.
Let’s look at the November ballot measures and then discuss the tax options.
- Arkansas voters will decide on Issue 4, which would legalize the possession, use, and sale of up to one ounce of marijuana and impose a 10 percent sales tax on top of the state’s general sales tax.
- Maryland voters will decide on Question 4, which would legalize possession and use of up to 1.5 ounces of marijuana. If voters approve the question, the tax structure would be set by the legislature.
- Missouri voters will decide on Amendment 3, which would legalize the possession, use, manufacture, delivery, and sale of marijuana and impose a 6 percent sales tax.
- North Dakota voters will decide on Measure 2, which would legalize the use and possession of up to one ounce of marijuana. No tax structure is specified.
- South Dakota voters will decide on Measure 27, which would legalize the possession, use, and distribution of one ounce of marijuana. No tax structure is specified. Voters approved Amendment A in 2020, which legalized pot and imposed a 15 percent sales tax, but that ballot result was set aside by the state supreme court.
Many states have legalized marijuana but then imposed heavy taxes and regulations on the product. But that generates wasteful bureaucracy and perpetuates a large black market. For taxes, the best approach is to simply apply the current state sales tax to marijuana. Unfortunately, politicians often favor complex policies over simple ones, and so numerous states have imposed complicated tax structures on pot.
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