Oakland Votes to Tax Marijuana

A measure to tax the gross receipts of licensed medical marijuana dispensaries in Oakland passed overwhelmingly on Tuesday. The vote makes Oakland the first city in the US to tax marijuana.

The tax was put on the ballot after a considerable push from the medical community. City Council jumped on the bandwagon, too, when it became clear that Oakland would not meet its budget for the year. Rebecca Kaplan, a local councilwoman said, “Given that the medical cannabis dispensaries are something that was legalized in California, why not have revenue from it?”

So that kind of makes sense. In theory, I get the idea of taxing legal substances, like tobacco, to raise revenue. What’s odd, though, is that this is medical marijuana. That is a significant distinction. In California, it would be otherwise exempt under the state sales tax laws which specifically exclude “[s]ales of prescription medicine and certain medical devices.” However, according to the Wall Street Journal, sales tax is collected on the purchase. This, according to the State Board of Equalization, is because marijuana cannot be exempted as a prescription drug since it is classed as a Schedule I drug by the federal government and is cannot be “prescribed.” To actually obtain medical marijuana, your doctor must write a note, not a prescription (insert rolling of the eyes here).

The new tax in Oakland is a gross receipts tax imposed on the dispensaries which are licensed to sell medical marijuana. Currently, four dispensaries inside the city fit the bill. Those dispensaries not only supported the effort to tax medical marijuana, they pushed City Council to put the tax to a vote. Why? While the tax is relatively small (1.8%), it, in effect, legitimizes their product. You may recall a similar effort in Nevada to tax prostitution; though legal, it was not taxed and the sex industry lead the failed effort to have it taxed. For better or worse, taxing a product is perceived as the government’s tacit approval of the sale of the product.

The latter is exactly what has riled those who are fighting to keep drugs out of California. Paul Chabot of the Coalition for a Drug Free California, in addressing those concerns, has said, “With the state in dire straits in finances and the country looking for ways to pay down debt, looking at illegal drugs is the absolute wrong thing to do.”

Only Mr. Chabot doesn’t have it quite right. California is one of 13 states that has passed a law legalizing the sale of medical marijuana; it is not illegal in that regard. Alaska, Colorado, Hawaii, Maine, Michigan, Montana, Nevada, New Mexico, Oregon, Rhode Island, Vermont and Washington have also legalized the sale of medical marijuana. Other states, like North Carolina and Iowa, are considering measures which would legalize the use of marijuana for medical purposes.

But Chabot does have many supporters who believe that the taxation of medical marijuana puts the state of California one step closer to legalizing the distribution of marijuana altogether. Those supporters argue that marijuana is a gateway drug to harder drugs and that legitimizing marijuana will pave the way towards legitimizing other drugs.

That arguments isn’t convincing many government officials. Taxing the distribution of medical marijuana is expected to raise an additional $300,000 for the City of Oakland, though some supporters claim that the number will be as high (no pun intended) as $1 million. Not surprisingly, then, Los Angeles, Berkeley and San Francisco are reportedly considering a similar scheme.

Even more dramatic, as blogged earlier, the state of California is debating a bill which would legalize and tax the sale of marijuana without regard for medical use. That bill includes a measure, ironically, which would exempt the sale of medical marijuana from sales tax.

Interestingly, it was the taxation of marijuana in the 1930s which lead to the criminalization of the drug. Really. The 1937 Marihuana Tax Act imposed a two part tax on the sale of marijuana; one which functioned like a sales tax and an occupational tax for licensed dealers. Violations of the Act resulted in serious consequences.

In 1969, Timothy Leary challenged his arrest for possession of marijuana under the Act; the case of Leary v. United States made it to the Supreme Court. The Court invalidated part of the Act as a violation of the Fifth Amendment (against self-incrimination). The result was a new law, the Controlled Substances Act, passed in 1970, which criminalized the possession or sale of marijuana.

Forty years later, we may end up at the same place again.

What do you think? Should we tax the sale of marijuana? Did Oakland get it right?