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Why are Colorado pot smokers getting a tax break?

A requirement outlined in Colorado's tax laws has led lawmakers to institute a one-day tax break on the sale of marijuana next week.

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Brennan Linsley/AP/File
A customer pays cash for retail marijuana at 3D Cannabis Center, in Denver, May 8, 2014. Due to a quirk of state tax law, Coloradans will be able to purchase marijuana tax-free for one day on Sept. 16.
  • By Annika Fredrikson Staff

The sale of recreational pot in Colorado is booming, and next week customers will receive a one-day tax break that could increase sales even further.

Marijuana tax revenues in Colorado jumped from $25 million in the first five months of 2014 to $44 million in the first five months of this year.

Colorado now has 380 recreational pot dispensaries and 480 licensed recreational pot growers, up from just a few dozen in the state's first months of retail recreational pot, and with the opening of more stores and new growers, pot sales continue to climb.

So if pot sales are already booming, why are customers being given a tax break?

In 2013, a year after legalizing recreational pot, voters approved a 25 percent tax on the sale of pot, as required by the state’s Taxpayer's Bill of Rights (TABOR). However, Colorado’s TABOR also outlines that the state must ask voters for permission to keep any money in excess of the projections given to voters at the time of approval.

This year, overall state collections exceeded projections. In that case, Colorado law requires that new taxes be waived and refunded, and that taxes revert to zero, so to comply with these regulations, lawmakers have settled on a one-day tax waiver.

The sales-tax break on Sept. 16 will shave $20 off the price of a mid-grade ounce of pot in the Denver area, where ounces this summer sold for about $200 before tax. But the drug won’t be completely tax-free as the regular 2.9 percent sales tax will still apply.

Still, marijuana dispensaries are gearing up for what could be large crowds hoping to make the most of the limited-time cheaper prices. Retailers are trying to determine the best strategy to deal with the possible increase in demand, keeping in mind that they too are given a one-day waiver on the 15 percent excise tax they pay marijuana wholesalers.

Ryan Fox, who owns two Denver dispensaries and also a wholesale pot-growing company, said, "Our hopes are high, and we're going to push as hard as we can to see as many customers as we can."

Refunds are only required in a new tax’s first year, so this lucky break won’t happen again, but Colorado voters will decide in November whether or not to reinstate the 25 percent tax.

This report contains material from the Associated Press.

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