Taxing legal marijuana – Arizona Prop 207 sales tax

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If you are an Arizona resident, you likely know that this year the legalization of marijuana is on our ballot. Proposition 207 would legalize the possession and use of marijuana for adults 21+, allow growing of marijuana plants, licensing of marijuana retailers and expungement of marijuana related crimes. One aspect of the proposition that many may overlook is the tax rate that the state will be imposing on these sales.

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The proposition calls for a 16% tax on marijuana sales in addition to the existing transaction privilege tax (“TPT” – also referred to as sales tax) and use tax. Currently Arizona’s general sales/use tax rate is 5.6%. This means that at the state level, the sale of marijuana would be taxed at 21.6%. And that is before taking city sales tax rates into consideration. In Scottsdale, where I am writing this from, there is a 1.75% sales tax rate. Maricopa County has a 0.7% sales tax rate. Therefore, the sale of marijuana in Scottsdale would be taxed at a total combined rate of 24.05%.

Marijuana is not the first type of good to face a higher tax rate. Arizona also imposes a Liquor Luxury Tax on a per gallon basis when licensed wholesalers sell to licensed retailers. Tobacco also faces additional taxes based on the number of cigarettes/cigars or ounces of tobacco product sold.

The above is general nature and is not tax advice. Questions? Feel free to contact your Henry+Horne tax professional today!

Haley Braun, CPA