The Paonia Town Council continued its debate concerning a retail sales tax on marijuana, an occupation tax on wholesale growers and manufacturers or both. The amount of the taxes and fees and whether the money collected should go into a specified fund or project was discussed on Aug. 12.
The taxes and fees will only go into effect if Paonia voters approve the ballot question allowing retail marijuana stores, wholesale operations for growing and manufacturing, and testing facilities.
Steve Rabe, interim town manager, explained that since the July 8 town council meeting, he, the town attorney and town clerk had called other attorneys around the state on how municipalities had derived their numbers on total revenue from the first year of marijuana sales taxes. TABOR requires that a maximum level be set on sales taxes. Any amount the town would collect above that amount would have to be returned to the taxpayer. The town wants to have a reasonable amount but high enough so it does not have to refund taxes and lose revenue.
What Rabe found out was that there was no real scientific formula used. Some towns which had approved marijuana sales simply doubled or tripled the revenue amount for their maximum. Back in July, Rabe had suggested $200,000. Now he and the town attorney, David Marek, believe the town will not make more than $50,000.
The town doesn’t want to make the amount artificially high, so that voters think they are going to make so much money they automatically will vote for the ballot question.
“On the other hand, you don’t want to make it so low you put yourself in a refund situation,” Rabe said. He said the State of Colorado is seeing less than one-half what it was anticipating in marijuana sales. People are moving toward medical marijuana because it is not taxed.
Rabe estimates that revenue for Paonia could be $15,000 to $20,000 but not more than $50,000.
Trustee Ross King said he was comfortable with the $50,000 maximum. “I don’t think that anyone has the ability to come up with a more accurate number,” King said.
In addition to the retail sales tax, the town could also impose an occupation tax or fee based on each transaction. The sales tax is based on a percentage. There is no sales tax at the wholesale level.
Charles Stewart, mayor pro tem, said that the occupational tax or fee could be at either the retail or wholesale level.
David Marek, town attorney, said he had seen occupational taxes of varying flat fees for retail and wholesale transactions. He said some towns charge $10 per transaction, others $100 per transaction. Trustee Amber Kleinman pointed out the per transaction fee would be unfair to those who purchased smaller amounts. A percentage would be more fair.
Jere Lowe suggested the town just have a retail sales tax. Adding a $10 occupation fee plus the retail sales tax would be too high.
Trustee Suzanne Watson said she was worried that Paonia would have grow facilities that would ship their product outside of the area and the town would not receive the revenue from the sales tax.
Stewart suggested a sales tax on retail sales and an occupation tax, which is a fee not governed by TABOR, just on wholesale transactions.
Regarding the sales tax, Stewart said the council could set it at a maximum of 10 percent and by ordinance reduce the tax. It was noted that the town could set it at five percent now and allow the council to raise it up to 10 percent. Watson suggested 3.5 percent because a higher tax would encourage black market sales.
Stewart countered that it will always “be cheaper on the street” due to all the costs of retail establishments and the taxes imposed by the state. Lowe agreed saying the retail market in Paonia would “target tourists and local consumers, for a lack of a better term, that don’t have a guy. But most consumers in this town grow it themselves or they have a guy [that they buy marijuana from].”
Consensus from the council was to have the ballot question have the initial retail marijuana sales tax at five percent with the ability to raise it up to a maximum sales tax of 10 percent. This sales tax would be in addition to the town’s two percent sales tax on purchases.
The occupation tax is a fee and is not voted on by voters. The trustees debated the amount of the fee for transaction. They discussed $100 a pound for a wholesale transaction fee. The council could set a transaction fee for other products such as flowers by the ounce and oils per gram.
Trustee David Bradford suggested that sales tax revenue should go into the General Fund and not to a specific project.
The council did not take any action on a licensing fee for marijuana businesses.
The Paonia Town Council will vote on the retail marijuana tax on Aug. 26. According to the agenda, the council is planning to have an executive session that night to get legal advice on ballot wording. All other discussions on the ballot question has been done at public council meetings.