FISCAL NOTE
Date Requested: January 12, 2024
Time Requested: 05:56 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1189 |
Introduced |
SB386 |
|
|---|
| CBD Subject: |
Health |
|---|
|
FUND(S):
Cannabis Transfer Tax Fund; Public Employees Insurance Agency Stability Fund; Fight Substance Abuse Fund; Division of Justice and Community Services; General Revenue Fund
Sources of Revenue:
General Fund Cannabis Transfer Tax Fund
Legislation creates:
Creates New Revenue, Increases Existing Expenses, Creates New Fund: Cannabis Transfer Tax Fund
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to legalize the personal use and possession of cannabis by adults; providing for a county option election to allow for the production and sales in that county; providing for regulation by the Bureau of Health; authorizing an excise and local sales tax on cannabis; prohibiting underage use; and preserving current laws relating to allowing employers and property owners to prohibit use or possession.
According to our interpretation, the proposed bill would legalize, for State purposes only, the personal use and possession of cannabis by adults aged 21 and over. The bill would also allow for a county option to hold an election to allow for the production and sale of cannabis in that county. The legislation would levy an excise tax of 15 percent on the sales price of cannabis to benefit the Cannabis Transfer Tax Fund and would impose both a 5 percent county sales tax and an additional local sales tax of 6 percent at the point of sale. The proposed bill also provides for licensing, renewal, and application fees, among others for the operation of cannabis establishments.
Of excise tax collections deposited into the Cannabis Transfer Tax Fund, 50 percent will be deposited into the Public Employees Insurance Agency Stability Fund, 25 percent will be deposited into the Fight Substance Abuse Fund, 12.5 percent will be allocated to the Division of Justice and Community Services, and 12.5 percent will be allocated to the General Revenue Fund. All proceeds from license and application fees and any administrative penalties will be allocated to the Department of Health and Human Resources. The proposed local sales tax of 6 percent would be collected at the point of sale by the licensed retail cannabis store. The county would retain 50 percent of the tax, and municipalities of the county would receive 50 percent of the tax, to be divided among the municipalities on a per capita basis.
This bill mentions a five percent county tax, a local tax of six percent, and an excise tax of 15 percent. These taxes are all in lieu of a state sales tax. Given various undefined parameters, including a base tax and unforeseeable results of county referendums, we are unable to provide a reasonable estimate of revenue resulting from this legislation.
It is estimated that the State could start collecting application fees from recreational dispensaries and growers/processors as early as October 2024. Cannabis sales are estimated to start as early as June 2025 along with the collection of excise and sales taxes. The cannabis market would be expected to peak sometime within the first five years of effect.
In addition, there are likely to be significant compliance concerns as the legalized cannabis industry begins in West Virginia. Adherence Compliance, a Colorado-based cannabis compliance company, found that compliance in Colorado scores an average of 82.9 out of 100, while compliance in California scores an average of 74.4 out of 100. It is important to note that Colorado has been regulating recreational marijuana since the law passed in 2012, while California has only recently legalized recreational use and sales. In addition, both states decriminalized marijuana in the 1970s and legalized medical marijuana in 2000 and 1996, respectively. It is expected compliance may take several years to reach reasonable levels, which will impact potential revenue yield.
Administrative costs incurred by the State Tax Division are estimated to be $106,500 for FY2025 and $45,000 in subsequent fiscal years.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2024
Increase/Decrease
(use"-") |
2025
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
106,500 |
45,000 |
| Personal Services |
0 |
45,000 |
45,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
1,500 |
0 |
| Other |
0 |
50,000 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
According to our interpretation, the proposed bill would legalize, for State purposes only, the personal use and possession of cannabis by adults aged 21 and over. The bill would also allow for a county option to hold an election to allow for the production and sale of cannabis in that county. The legislation would levy an excise tax of 15 percent on the sales price of cannabis to benefit the Cannabis Transfer Tax Fund and would impose both a 5 percent county sales tax and an additional local sales tax of 6 percent at the point of sale. The proposed bill also provides for licensing, renewal, and application fees, among others for the operation of cannabis establishments.
Of excise tax collections deposited into the Cannabis Transfer Tax Fund, 50 percent will be deposited into the Public Employees Insurance Agency Stability Fund, 25 percent will be deposited into the Fight Substance Abuse Fund, 12.5 percent will be allocated to the Division of Justice and Community Services, and 12.5 percent will be allocated to the General Revenue Fund. All proceeds from license and application fees and any administrative penalties will be allocated to the Department of Health and Human Resources. The proposed local sales tax of 6 percent would be collected at the point of sale by the licensed retail cannabis store. The county would retain 50 percent of the tax, and municipalities of the county would receive 50 percent of the tax, to be divided among the municipalities on a per capita basis.
This bill mentions a five percent county tax, a local tax of six percent, and an excise tax of 15 percent. These taxes are all in lieu of a state sales tax. Given various undefined parameters, including a base tax and unforeseeable results of county referendums, we are unable to provide a reasonable estimate of revenue resulting from this legislation.
It is estimated that the State could start collecting application fees from recreational dispensaries and growers/processors as early as October 2024. Cannabis sales are estimated to start as early as June 2025 along with the collection of excise and sales taxes. The cannabis market would be expected to peak sometime within the first five years of effect.
In addition, there are likely to be significant compliance concerns as the legalized cannabis industry begins in West Virginia. Adherence Compliance, a Colorado-based cannabis compliance company, found that compliance in Colorado scores an average of 82.9 out of 100, while compliance in California scores an average of 74.4 out of 100. It is important to note that Colorado has been regulating recreational marijuana since the law passed in 2012, while California has only recently legalized recreational use and sales. In addition, both states decriminalized marijuana in the 1970s and legalized medical marijuana in 2000 and 1996, respectively. It is expected compliance may take several years to reach reasonable levels, which will impact potential revenue yield.
Administrative costs incurred by the State Tax Division are estimated to be $106,500 for FY2025 and $45,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to legalize the personal use and possession of cannabis by adults; providing for a county option election to allow for the production and sales in that county; providing for regulation by the Bureau of Health; authorizing an excise and local sales tax on cannabis; prohibiting underage use; and preserving current laws relating to allowing employers and property owners to prohibit use or possession.
The bill imposes an excise tax of 15 percent of the sales price (not defined). The point of taxation is the transfer of cannabis from a cannabis cultivation facility to a cannabis product manufacturing facility or to a retail cannabis store. There is no provision regarding which entity is first liable for the collection and remittance of the tax. The bill is silent regarding who is responsible for collecting the tax.
The Department of Revenue does not have the authority to administer, collect, and enforce taxation. The Tax Commissioner has such authority given in Chapter 11, specifically in articles 9 and 10. The bill lacks the usual language used in levying taxes (i.e., “for the privilege of … an excise tax is levied”). The bill lacks language which clearly makes a specific person liable for collecting, reporting, and paying the tax over to the Commissioner or County Commission. The bill lacks tax administration structure. The bill appears to impose the state’s 15 percent excise tax and the “special” sales tax of 5 percent and the “local” sales tax of 6 percent in lieu of the usual state and municipal sales and use taxes (see §16A-17-7(c) “[s]ales of cannabis derived products authorized for sale pursuant to this article are not otherwise subject to the consumers sales and service tax as provided in §11-15-1 et seq. and §11-15B-1 et seq. of this code, or any other state taxes not provided pursuant to this section”).
The bill requires the bureau to adopt legislative rules no later than July 1, 2024. This is impossible, since legislative rules promulgated by an agency must be adopted by the Legislature in the following legislative session. The bill lists nine areas the rules are to address including: licensure to operate a cannabis establishment, qualifications for licensure, security requirements for cannabis establishments, requirements to prevent the sale or diversion of cannabis or cannabis products to persons under the age of 21, labeling requirements, health and safety standards for manufacture and cultivation, restrictions on advertising and display of cannabis and cannabis products, and civil penalties for failure to comply with the rules. The bill specifies that the application fees may not exceed $5,000 which may be adjusted annually for inflation and provides the bureau may determine a greater fee is necessary to carry out its responsibilities. The fee for an entity that is licensed to sell cannabis for medical use is limited to $500.
The bill provides that the bureau shall begin accepting applications by October 1, 2024. The bureau is to immediately forward a copy of each application to the municipality in which the application desires to operate. One half of the application fee is to be forwarded to the county and municipality. The fee split appears to differ from the provisions of the bill in §§16A-17-6(a)(2) and 16A-17-7(b)(5). The bureau is to issue a license between 45 and 90 days after receipt. Notification of a denial is to be in writing and must give the specific reason for denial. The bill does not make any provision for an appeal of a denial.
There is no internal effective date.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov