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New York's decision to legalize marijuana means greener pastures for tax collectors.
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Something to Celebrate?

This time of year, millions of Americans celebrate Easter and Passover, the holiest days of their faith. But the calendar is loaded with plenty of “Hallmark holidays,” too, usually invented by companies looking to sell something. There’s Sweetest Day, invented by greeting card companies to sell more greeting cards. There’s Small Business Saturday, invented by American Express to get you to buy local. And who can forget the nerd’s favorite holiday, pi day (3.14)? You got it — invented by math companies to sell more math.

Most of those faux holidays don’t mean much for tax collectors, beyond an extra serving of sales tax for flowers or chocolate. But as more and more states legalize recreational marijuana, April 20 (4:20) assumes a bigger place on the calendar. The nonprofit Marijuana Policy Project, a DC-based advocacy group, reports that states have collected $7.1 billion in taxes from legal, adult-use recreational sales since 2012, when Washington and Colorado became the first.

Last week, New York legalized recreational use for adults age 21 and older. Of course, there aren’t any local joints where you can legally buy it yet — that may take a year or more, depending on where you live. And you’ll pay some hefty taxes when you do, with a 9% sales tax going to the state, 4% going to the county, and a wholesale tax based on the level of THC. The final tax could reach as high as 20-21%, which is in line with other states ranging from 10% in Maine to 47% in Washington.
Officials estimate the new taxes will raise $350 million per year once the market matures, based on $3.5 billion in annual sales. That’s a tiny fraction of the state’s total $177 billion budget — but every bit helps in an economy still reeling from Covid.

The move will also save courts and police departments over $100 million per year they’re currently wasting busting smokers, at an average cost of $4,390. Now they can spend it fighting real crime. And in an ironic twist, one Colorado study showed legal dispensaries actually raise nearby housing values — which may lead to bonus revenue from property taxes.

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New York’s new law allows cities, towns, and villages to blackball retail dispensaries in their jurisdictions. But that may be fiscally short-sighted. It means passing up sales tax revenue, along with income taxes on the jobs the new businesses create. And it’s not like there haven’t always been “unlicensed” dealers waiting to satisfy demand. Some advocates even worry the proposed taxes will be too high to compete with illegal dealers.

Today’s move towards taxing recreational marijuana represents a profound cultural shift. Forty years ago, former First Lady Nancy Reagan told schoolchildren to “just say no” to drugs. But drugs refused to take “no” for an answer, so here we are. Thirty six states have authorized medical marijuana, and one out of three Americans can legally indulge recreationally. That list includes some surprises. Country singer Merle Haggard opened his redneck anthem, “Okie From Muskogee” with the line, “We don’t smoke marijuana in Muskogee.” Now the “Sooner state” has over 2,200 licensed dispensaries.

The good news, for overtaxed New Yorkers, is they can opt-out of the new marijuana taxes entirely. Just say no! New York will be more than happy to tax you $6.44/gallon for your booze and $4.35 for a pack of smokes. Or you could treat your body like a temple and start saving for that Peloton you’ve always wanted. We’ll even show you how to write off the Peloton!

Tax Beat is a weekly column with a unique angle: making taxes entertaining. Every week Ed explores the humorous aspects of taxes and current events. 

Edward Lyon

Edward Lyon

Edward A. Lyon is CEO of the Tax Master Network, where he's coached tax professionals to add planning and financial services to their business since 2005. Go here to join the network. Go here to upgrade your membership or discuss opportunities in financial services.
Edward Lyon

Edward Lyon

Edward A. Lyon is CEO of the Tax Master Network, where he's coached tax professionals to add planning and financial services to their business since 2005. Go here to join the network. Go here to upgrade your membership or discuss opportunities in financial services.

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