Thursday, January 26, 2023
Hawai'i Free Press

Current Articles | Archives

Sunday, January 8, 2017
What's Next for Marijuana Tax?
By Tom Yamachika @ 4:01 AM :: 4929 Views :: Taxes, Drugs

What's Next for Marijuana Tax?

By Tom Yamachika, President, Tax Foundation Hawaii

Here in Hawaii, we have an initial group of licensed medical marijuana dispensaries getting ready to open shop, although none have opened to date. This has raised some tax issues before, and some are likely to come up again.

On Election Day 2016, voters in several states legalized marijuana and approved hefty tax rates to go with it. California, Massachusetts, and Nevada all approved marijuana with a special tax rate of 15%. In Maine, the ballot measure squeaked by with a special tax rate of 10%. A marijuana measure also was on the ballot in Arizona, together with a 15% tax rate, but was rejected by voters there. In all these states, the high tax applies to recreational use of marijuana, not medicinal use which was legal in each of these states before the election.

Earlier in 2016, lawmakers decided that the federal income tax rule prohibiting any deductions for dealers in controlled substances would not apply to licensed medical marijuana dispensaries.

The same law also said that our General Excise Tax exemption for medicine would not apply either. This may mean that our legislators are considering a special, higher GET rate for marijuana, but haven’t decided upon that rate yet. Indeed, one of the versions of the bill that legalized marijuana dispensaries, in fact, carried a 25% special GET rate.

If that’s what lawmakers want to do, they should keep in mind that the tax is imposed on the business, and if the business chooses to pass it on to the consumer that part is also taxed, requiring a higher passed-on rate if the business just wants to come out even. That’s why Neighbor Island consumers see a line item for 4.166% tax on their bills although their GET rate is 4%, and Honolulu consumers get 4.712% passed on to them when their tax rate is 4.5%.

When the tax rate gets higher, the difference between the legal rate and the pass-on rate goes up as well, and dramatically so. To see the reason why, suppose the GET rate is 25%, as lawmakers proposed earlier, and we have a dispensary that needs to clear $300 after taxes. The dispensary can't simply charge its customer 25% of $300 = $75 as tax, because the dispensary will be required to pay 25% of the total charge of $375, which is $93.75. That would leave the dispensary almost $20 short. Instead, the dispensary must charge $100 in tax. Then the total sales price is $300 + $100 = $400, and the tax is 25% of $400 = $100, leaving the dispensary with the $300 needed.

Thus, if we have a special GET rate for marijuana at 25% of sales, the passed-on rate would be 33.333%! If lawmakers decide to enact a 15% rate, which was passed by most of the ballot measure states this time, the passed-on rate would be 17.647%, adding more than 2½% to an already astronomical rate. With a 10% rate, the passed-on rate would be 11.111%, adding more than one whole percentage point.

Again, this tax would be on medical marijuana, not marijuana for recreational use. If the former is taxed while medicine is not, then how much tax will apply to recreational use if it is legalized?

This, of course, just goes to show how different our GET is from the sales taxes that are prevalent on the mainland. We aren't in Kansas, Dorothy!  Lawmakers who are considering such changes would be well advised to keep these differences in mind.


TEXT "follow HawaiiFreePress" to 40404

Register to Vote


808 Silent Majority

ACA Signups Hawaii

Alliance Defending Freedom

Aloha Pregnancy Care Center

American Council of Trustees and Alumni


Antonio Gramsci Reading List

A Place for Women in Waipio

Astronomy Hawaii

Back da Blue Hawaii

Ballotpedia Hawaii

Better Hawaii

Broken Trust

Build More Hawaiian Homes Working Group

Christian Homeschoolers of Hawaii

Cliff Slater's Second Opinion

DVids Hawaii


Fix Oahu!

Frontline: The Fixers

Genetic Literacy Project

Grassroot Institute

Hawaii Aquarium Fish Report

Hawaii Aviation Preservation Society

Hawaii Catholic TV

Hawaii Christian Coalition

Hawaii Cigar Association

Hawaii Coalition Against Legalized Gambling

Hawaii ConCon Info

Hawaii Credit Union Watch

Hawaii Crop Improvement Association

Hawaii Debt Clock

Hawaii Defense Foundation

Hawaii Family Forum

Hawaii Farmers and Ranchers United

Hawaii Farmer's Daughter

Hawaii Federalist Society

Hawaii Federation of Republican Women

Hawaii Future Project

Hawaii Gathering of Eagles

Hawaii History Blog

Hawaii Homeschool Association

Hawaii Jihadi Trial

Hawaii Legal News

Hawaii Legal Short-Term Rental Alliance

Hawaii Matters

Hawaii's Partnership for Appropriate & Compassionate Care

Hawaii Public Charter School Network

Hawaii Rifle Association

Hawaii Shippers Council

Hawaii Smokers Alliance

Hawaii State Data Lab

Hawaii Together



Hiram Fong Papers

Homeschool Legal Defense Hawaii

Honolulu Navy League

Honolulu Traffic

House Minority Blog

Imua TMT

Inouye-Kwock, NYT 1992

Inside the Nature Conservancy

Inverse Condemnation

Investigative Project on Terrorism

July 4 in Hawaii

Kakaako Cares

Keep Hawaii's Heroes

Land and Power in Hawaii

Legislative Committee Analysis Tool

Lessons in Firearm Education

Lingle Years

Malulani Foundation

Managed Care Matters -- Hawaii

Malama Pregnancy Center of Maui

Military Home Educators' Network Oahu

Missile Defense Advocacy

MIS Veterans Hawaii

NAMI Hawaii

National Christian Foundation Hawaii

National Parents Org Hawaii

NFIB Hawaii News

No GMO Means No Aloha

Not Dead Yet, Hawaii

NRA-ILA Hawaii

Oahu Alternative Transport


OHA Lies

Opt Out Today

Patients Rights Council Hawaii

PEACE Hawaii

People vs Machine

Pritchett Cartoons

Pro-GMO Hawaii


Rental by Owner Awareness Assn

ReRoute the Rail

Research Institute for Hawaii USA

Rick Hamada Show

RJ Rummel

Robotics Organizing Committee

Save Dillingham Airfield

School Choice in Hawaii

Sink the Jones Act

Statehood for Guam

Talking Tax

Tax Foundation of Hawaii

The Real Hanabusa

Time Out Honolulu

Trustee Akina KWO Columns

UCC Truths

US Tax Foundation Hawaii Info

VAREP Honolulu

West Maui Taxpayers Association

What Natalie Thinks

Whole Life Hawaii