DENVER – Voters in November decided to levy hefty taxes on Colorado’s new marijuana industry when they passed Proposition AA.
Now, the state might have to give all the money back.
The reason is an obscure paragraph in the Taxpayer’s Bill of Rights, which has taken legislators by surprise.
“A lot of people voted for AA thinking if it’s going to be legal, let’s tax it as much as we can,” said Rep. Cheri Gerou, R-Evergreen.
The Legislature’s economists predicted Tuesday that the pot taxes will raise $54.7 million in their first year – less than proponents of Prop AA predicted.
But all of the taxes might need to be refunded to voters because of TABOR. And it’s not for the reason that even the sharpest experts on state government would predict.
Voters approved TABOR in 1992, and the amendment is best known for its requirement that voters approve all tax increases. Colorado is the only state in the country that gives voters the exclusive power to raise taxes.
TABOR also requires the state to give voters tax refunds if government revenue reaches a certain level that is tied population growth and inflation. Economists predict that will not happen during the next two years.
However, the Legislature’s legal department has pointed out a paragraph in TABOR that has never had any effect until now. The clause requires the Legislature to publish predicted state spending both with and without the proposed tax in the “Blue Book,” a voter information packet that the Legislature mails out before each election.
If state spending exceeds the amount predicted in the Blue Book, then according to TABOR, the tax must be refunded. Because of the economic recovery, state spending is growing faster than the BLue Book predicted last fall.
Sen. Pat Steadman, D-Denver, said he was frustrated to learn of the scenario in recent days.
“This is confounding. TABOR told us to let the voters decide. The voters have decided, and their wishes may be frustrated by something hidden in the TABOR amendment,” Steadman said.
The Legislature’s legal department pointed out the problem to the Joint Budget Committee last week, and the JBC discussed it Tuesday. Legislators have several opinions on what to do next.
It’s possible that the Legislature might have to make a $54.7 million tax refund. If that’s the case, then the question would be who gets the refund – marijuana stores, their customers or Coloradans in general.
Gerou said there’s no rush, and the Legislature can decide what to do in 2015.
Steadman said he would like to see what the Colorado Supreme Court has to say about it. Gov. John Hickenlooper could ask the high court for an opinion.
And JBC chairwoman Crisanta Duran, D-Denver, saw an opportunity to strike a blow against TABOR, which has been a thorn in the side of a generation of Colorado Democrats.
This is the second time in just a few months that an unknown provision of TABOR has taken legislators by surprise. Front Range cities discovered TABOR restricted their budgets for recovery from last fall’s floods.
“Maybe the time is now that we have that conversation with voters, because there is no doubt TABOR has created major problems, particularly when it comes to flood recovery,” Duran said.
Apart from TABOR, legislators are grappling with other uncertainties around marijuana.
The first month of legal pot sales brought in about $2 million in taxes. But it’s anyone’s guess as to what the rest of the year will bring. Larson Silbaugh, an economist for the Legislature, said the number might be low because only a handful of pot shops were open in January. Or it might be high because of the novelty of buying over-the-counter marijuana and because store owners raised their prices to benefit from high demand.
“You can basically use that January number to justify any forecast you want,” Silbaugh said.
In other words, legislators are facing a tough task in the next few weeks, when they will attempt to set the budget for Colorado’s marijuana programs.