FISCAL NOTE
Date Requested: January 20, 2023
Time Requested: 01:41 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2125 |
Introduced |
HB2851 |
|
|---|
| CBD Subject: |
Actions, Suits and Liens |
|---|
|
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; Public Employees Insurance Agency Stability Fund; local governments
Legislation creates:
Creates New Revenue, Creates New Expense, Increases Existing Expenses, Creates New Program, 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 a 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% 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.
The estimated revenue from the legalization of recreational cannabis in West Virginia is as follows:
● FY2025: $50,000 in license/application fees.
● FY2026: $2.3 million in Excise Taxes, $1.4 million in local sales taxes, and $50,000 in license/application fees.
● FY2027: $5.2 million in Excise Taxes, $3.7 million in local sales taxes, and $50,000 in license/application fees.
● FY2028: $5.9 million in Excise Taxes, $4.5 million in local sales taxes, and $50,000 in license/application fees.
● FY2029: $6.6 million in Excise Taxes, $4.2 million in local sales taxes, and $50,000 in license/application fees.
Based on estimated excise tax collections for FY 2026, $1.15 million would be distributed to the Public Employees Insurance Agency Stability Fund; $575,000 to the Fight Substance Abuse Fund; $287,500 to the Division of Justice and Community Services; and $287,500 to the General Revenue Fund.
It is estimated that the State will start collecting application fees from recreational dispensaries and growers/processors in June 2025. Cannabis sales are estimated to start in January 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 Department are estimated to be $138,000 for FY2024 and $90,000 in subsequent fiscal years.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2023
Increase/Decrease
(use"-") |
2024
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
138,000 |
90,000 |
| Personal Services |
0 |
90,000 |
90,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
3,000 |
0 |
| Other |
0 |
45,000 |
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 a 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% 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.
The estimated revenue from the legalization of recreational cannabis in West Virginia is as follows:
● FY2025: $50,000 in license/application fees.
● FY2026: $2.3 million in Excise Taxes, $1.4 million in local sales taxes, and $50,000 in license/application fees.
● FY2027: $5.2 million in Excise Taxes, $3.7 million in local sales taxes, and $50,000 in license/application fees.
● FY2028: $5.9 million in Excise Taxes, $4.5 million in local sales taxes, and $50,000 in license/application fees.
● FY2029: $6.6 million in Excise Taxes, $4.2 million in local sales taxes, and $50,000 in license/application fees.
Based on estimated excise tax collections for FY 2026, $1.15 million would be distributed to the Public Employees Insurance Agency Stability Fund; $575,000 to the Fight Substance Abuse Fund; $287,500 to the Division of Justice and Community Services; and $287,500 to the General Revenue Fund.
It is estimated that the State will start collecting application fees from recreational dispensaries and growers/processors in June 2025. Cannabis sales are estimated to start in January 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 Department are estimated to be $138,000 for FY2024 and $90,000 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 lacks the usual language used in levying taxes. 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. West Virginia is part of the Streamlined Sales and Use Tax Agreement, which requires all sales tax to be collected and administered by the Tax Commissioner.
While sales of cannabis derived products under this bill are not subject to the state tax of §11-15-1 et seq. as administered under §11-15B-1 et seq., sales will be subject to a local sales tax of six percent and shall be collected at the point of sale by the licensed retail cannabis store.
“Municipality” is not defined and thus it is assumed that any incorporated city, town, or village may participate in the distribution of the local sales tax.
There is no internal effective date.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov