State Taxes on Recreational Marijuana

All states that have established a legal market for recreational marijuana impose hefty special taxes on its sale.

Medical use of marijuana has long been legal in a majority of the states. Such use requires a prescription from a doctor. However, in a growing national trend, ten states have acted to legalize recreational marijuana use--that is, use of marijuana of a specified amount of marijuana for any purpose without a prescription. These states are:

  • Alaska
  • California
  • Colorado
  • Maine
  • Massachusetts
  • Michigan
  • Nevada
  • Oregon
  • Vermont, and
  • Washington state.

Most of these states have established legal markets where customers can purchase marijuana from state-licensed marijuana dispensaries or retailers. However, although Maine legalized recreational marijuana in November 2016 by ballot initiative, it has not yet implemented a legal market. Michigan legalized marijuana by ballot initiative in November 2018, and a legal market may be up and running by late 2019 or early 2020. Vermont legalized possession of marijuana in 2018, but has not created a legal market.

All states that have established a legal market for recreational marijuana impose hefty special taxes on its sale. Thus far, marijuana tax collections have been good. Colorado, the first state to legalize recreational marijuana, collected over $247 million in taxes from marijuana sales in 2017. Washington state collected $314 million in 2017.

The type and amount of these recreational marijuana taxes vary from state-to-state and are shown in the following chart:

State Taxes on Recreational Marijuana

State

Tax Rate

Alaska

$50/oz. cultivation tax

California

7.5% state sales tax + 15% excise tax + $9.25/oz. flowers & $2.75/oz. leaves cultivation tax

Colorado

15% state sales tax + 15% excise tax+

Maine

10% state sales tax

Massachusetts

10.75% state sales tax

Michigan

6% states sales tax + 10% excise tax

Nevada

10% state sales tax + 15% excise tax

Oregon

17% state sales tax

Washington

6.5% state sales tax + 37% excise tax

In every state except Alaska, customers must pay the state sales tax which is collected by the marijuana dispensary or retailer. Several states have established special state-wide sales tax rates for marijuana sales—for example, Colorado charges a 15% sales tax. Oregon, which is famous for not having a general sales tax, imposes a 17% sales tax on marijuana. In most of these states, cities and counties are allowed to charge additional local sales taxes on top of the state sales tax. These vary. For example, Berkeley, California charges a 5% sales tax, while localities in Oregon are allowed to charge a 3% additional sales tax.

Most states also impose excise taxes on retail purchases of marijuana, similar to those imposed on tobacco and alcohol. These can be hefty, just like they are for cigarettes. For example, Washington imposes a 37% excise tax on recreational marijuana.

Some states, like California, also impose cultivation taxes that must be paid by marijuana growers. The cost of these taxes is passed on to customers in the form of higher prices.

All these taxes often make legal recreational marijuana more expensive than marijuana purchased illegally on the black market.

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