Play or pay

Imagine if Lyon County banned the sale of soft drinks or cold medicines.

The loss of revenue to the state would be substantial on such popular products. But Lyon County’s share of the state sales tax on those products generated in other counties would continue to flow to Yerington.

That’s essentially the situation that prevails today in Lyon and other places whose local officials continue marijuana prohibition after the Nevada public voted first for medical use and then for full legality. And in jurisdictions in and out of Nevada, there are discussions of changing the system so that those who don’t play don’t get paid.

Oregon has already revoked marijuana tax distribution to counties that do not contribute to the tax. So has California, and Massachusetts is considering it. Eight states, including Nevada, have legal marijuana under state law.

Clark County Sen. Richard Segerblom, a leader in ending marijuana prohibition, said he wants the same thing in Nevada.

“I agree 100 percent,” he said. “My proposal is to change the 10 percent excise tax so that the money raised from that tax stays in the county where its raised. Why should Douglas County benefit from pot tax raised in Las Vegas?”

Lyon County does not just bar marijuana sales, but medical marijuana sales as well. Medical sales, approved by voters, were banned after then-Lyon Sheriff Allen Veil said, “This is not about medical marijuana use. It’s about preventing the use of the system by organized crime and related violence in Lyon County.”

Veil did not explain his theory of an economic system that did not see mobsters enter a county when there was full-fledged marijuana prohibition but would appear if prohibition was watered down to allow medical use. But county commissioners took his advice anyway.

In Massachusetts, some officials say there would be difficult administrative problems associated with excluding some jurisdictions from distribution of state revenues.

“[M]unicipalities receive state funds through numerous channels, including local aid from lottery proceeds and grants for specific projects,” the Boston Globe reported. “Which stream of money to target, and by how much, would need to be determined. Similarly, parsing pot taxes, a portion of which will be mingled in the same state fund that receives other sales tax collections, would be extremely difficult, according to Massachusetts financial officials.”

Nevada taxation director Deonne Contine was ill and unavailable for comment, and assistant director Shellie Hughes could not be reached for comment on whether similar administrative problems exist in Nevada.

One supporter of legal marijuana in Massachusetts, Jim Boghesani, conceded the administrative problems but said, “Why should towns that vote to keep criminals in control of marijuana commerce and keep unsafe, untested products on the streets not experience repercussions?”

Some communities which voted against legal marijuana, such as Marshfield and Brewster, are now switching sides after seeing the revenue sales can produce.

Withdrawing their share of funds from communities that ban legal sales penalizes local control, said Massachusetts Muncipal Association head Geoff Beckwith: “The idea that funding for public schools would be negatively impacted by a community’s decision not to allow pot shops is in itself a laughable solution.”

It is not just a matter of state but also of local taxes. In Colorado, localities that ban legal sales lose the local marijuana taxes they would create if they allowed sales. More than 200 communities have barred sales, including Colorado Springs, the second largest city in the state. “It’s also particularly hard for the city to see these major improvements in neighborhoods knowing that many of the customers who are buying marijuana are Colorado Springs residents,” reported alternative news site Civilized Life. “Colorado Springs City Council President Richard Skorman calls it ’sales tax leakage.’”

A University of Denver report found Colorado Springs losing about $20 million annually with the ban. In addition, the numerous local bans have helped keep a black market alive.

In California, Fresno has been taking a different route from most of the state for years. It once allowed medical marijuana but eight years ago prohibited even that use. Now, as the state has gone full legal, Fresno is reconsidering whether to allow medical use—and even that use would be months off.

In Oregon, cities and counties were initially cut in for substantial portions of the state marijuana tax, whether they allowed sales or not. But, last July, that free ride ended, though the hit was softened because 40 percent of payments still go directly to local schools.

We have been unable to locate a list of Nevada jurisdictions that ban marijuana sales, but besides Lyon and Douglas counties, they include Boulder City. There have also been administrative snags that have delayed legal sales in West Wendover and Elko County.

On another aspect of pot, the libertarian magazine Reason argues that Nevada has another feature to its legal sales.

After Nevada sales began last year, the magazine asked, “Are Nevada officials actually trying to preserve the state’s marijuana black market?”

Calling the state’s legalization “half-hearted,” it ran the numbers.

“In the first four days that Nevada residents could legally purchase marijuana for recreational uses, state retailers made $3 million in sales—and lined the state government’s coffers to the tune of a cool $500,000 in tax revenues, according to the Las Vegas Sun. Actually, that can’t be right. Allowing for rounding, that only accounts for about 15 percent of sales—which is the state excise tax on the first wholesale sale. Nevada also imposes a 10 percent retail excise tax on recreational sales, and then adds in sales tax, which varies from just under 7 percent to over 8 percent according to where you are. Let’s call the total tax take about 32 percent of legal recreational marijuana sales. That’s a REALLY high tax rate to impose on any industry—especially one that was thriving (albeit illegally) and entirely untaxed less than two weeks ago.”

And high prices foster a black market, as state officials have found with cigarettes.