Earlier this year the Oregon Legislature passed House Bill (HB) 2041, effective as of October 5, 2015. HB 2041 created a stir when it replaced an excise tax on recreational cannabis production with a retail sales tax on cannabis sales. Over the years Oregonians have routinely rejected sales taxes. However, the new sales tax and other provisions in the bill are favorable to the recreational cannabis industry.
Measure 91, passed by public referendum in 2014, imposed an excise tax on recreational cannabis producers. Such producers would have been responsible for paying a tax of $35 per ounce of dried flower, $10 per ounce of dried leaves, and $5 per immature plant. In order to combat inflationary issues, Measure 91 provided for adjustments to the excise tax in relation to the consumer price index.
The sales tax adopted by HB 2041 replaces these excise taxes; it is imposed on recreational cannabis consumers and is collected by the retailer at the point of sale. The sales tax is equal to 17 percent of the retail sales price. A higher sales tax applies to retail sales by medical cannabis dispensaries that have elected to engage in such sales. Starting on January 4, 2016, medical dispensaries that elected to engage in recreational sales will be required to collect a 25 percent sales tax on all retail sales transactions.
During the 2015 legislative session, the Legislative Revenue Office estimated that HB 2041 will reduce the amount of taxes collected by the state by roughly $5 million for fiscal years 2015-17, but increase taxes by $18 million for fiscal years 2017-19. The economic analysis relies on an assumption that HB 2041 will reduce the production costs of recreational cannabis and drive lower retail sales prices. As a result, taxable retail sales are expected to replace a portion of black market sales, resulting in more taxable sales.
Three aspects of HB 2041 are intended to lower the cost of recreational cannabis production:
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