Be on the lookout for new taxes on your favorite products, as excise taxes featured prominently in the November 2014 election and voters decided to enact new taxes on products such as marijuana and sugary beverages. But will these sin taxes actually deter unhealthy behavior?
Some think it is unlikely.
When it comes marijuana taxes, states look to Colorado and Washington as the examples, as both states began retail sales this year. One reason states argue that legalization will be successful is that it will deter the marijuana black market and associated crime.
But a recent working paper from the Cato Institute, which analyzes Colorado’s marijuana policies beginning with marijuana decriminalization to full legalization, suggests that evidence shows the minimal impact changing marijuana policy has had on marijuana use and the outcomes associated with that use. The same result may occur in other states, suggesting that marijuana legalization does not actually eliminate unwanted behavior.
Marijuana legalization comes with the added benefit of new taxes for states.
Alaska's Measure 2 requires that every marijuana cultivation facility pay a $50 per-ounce excise tax on marijuana sold or transferred to a retail marijuana store or marijuana product manufacturing facility. Oregon's Measure 91will implement a $35 per-ounce excise tax on marijuana flowers, a $10 per-ounce tax on marijuana leaves and a $5 tax per immature marijuana plant.
But tax revenues have also fallen vastly short of estimates, particularly in Colorado. Retail marijuana sales in Colorado were supposed to bring in an additional $98 million to state coffers during the first year, but so far, retail marijuana sales have brought in less than half that amount. Through Oct. 2014, retail marijuana taxes, licenses and fees have only generated approximately $38.9 million. Additionally, retail marijuana sales are not outstripping medical marijuana sales consistently, as some suggested would happen when marijuana became legal.
Sugary beverages are also another source of tax revenue for states, and now cities.
Beverage taxes have become popular in recent years because some studies show that consumption of sugary beverages relates to weight gain and obesity. Taxes are supposed to encourage healthier behavior by increasing the cost of popular sodas and other drinks, dissuading consumers from purchasing them. But some critics argue that taxes will not have any effect on obesity rates because sugar-sweetened beverages are only a small portion of daily caloric consumption and that obese individuals actually drink diet soda that does not contain sugar, so it is not subject to tax.
Berkeley, California became the first city to impose a tax on sugar-sweetened beverages, with 75 percent of voters approving Measure D. When the ordinance goes into effect on Jan. 1, sugar-sweetened beverages will be subject to an additional $0.01 per ounce excise tax. “Sugar-sweetened beverage” means any beverage that contains added caloric sweeteners, including items such as soda, sports drinks, energy drinks and sweet teas. Diet soda that does not include an added caloric sweetener will not be subject to the tax.
However, some people are not jumping on the bandwagon for sugary beverage taxes just yet.
Although voters in San Francisco approved a similar measure 55 percent to 45 percent, the measure failed because the revenue from the tax was already earmarked for nutrition and health programs in public schools, requiring a supermajority vote of at least 60 percent to pass.
Approximately 30 cities and states have attempted to enact beverage taxes since 2008, according to Bloomberg BNA reports, but all have failed. The New York Court of Appeals ended the debate about New York City’s ban on large size sodas in June, upholding lower court rulings that permanently blocked the ban from going into effect in 2013.
Only four states currently tax sugary beverages—Arkansas, Tennessee, Virginia and West Virginia. Illinois attempted to join the list this year, but the Illinois Legislature rejected legislation in May.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Will taxes on marijuana and sugary beverages deter unhealthy habits? Or are they purely a revenue source for states?
For more information about this and other state tax issues, sign up for a free trialof the Bloomberg BNA Premier State Tax Library.
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