FISCAL NOTE
Date Requested: February 23, 2021
Time Requested: 12:32 PM |
| Agency: |
Tax & Revenue Department, WV State |
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| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2185 |
Introduced |
HB2665 |
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| CBD Subject: |
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FUND(S):
Cannabis Tax Transfer Fund, Teacher Compensation and Public Employees Insurance Agency Fund, Best Virginia Infrastructure Fund, Law-Enforcement and Community Fund, Entrepreneur and Small Business Fund, Respect Your Elders Fund
Sources of Revenue:
Special Fund
Legislation creates:
Creates New Revenue, Creates New Expense, Increases Existing Expenses, Creates New Program, Creates New Fund: Cannabis Tax Transfer 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 cannabis, provide for taxation of cannabis, and allow cannabis market activity as regulated by the Department of Commerce.
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 and would allow county governments the option of allowing production and sale on cannabis within county borders. The legislation would levy an excise tax of 17.5 percent on the sale of price of cannabis to benefit the Cannabis Transfer Tax Fund and would impose a local sales tax of 6 percent but not subject such sales to the regular State sales tax. The proposed bill also provides for licensing, renewal, and application fees, among others, for the operation of cannabis establishments.
Of excise tax collections deposits into the Cannabis Transfer Tax Fund, 25 percent will be deposited into the Teacher Compensation & Public Employees Insurance Agency Stability Fund, 35 percent will be deposited into the Best Virginia Infrastructure Fund, 15 percent will be allocated to the Law Enforcement and Community Fund, 15 percent will be allocated to the Entrepreneur and Small Business Fund, and 10 percent to the Respect your Elders Fund. License and application fees will be deposited into the Cannabis Transfer Tax Fund. The proposed local sales tax of 6% would be collected at the point of sale by the licensed retail cannabis store. The municipality shall receive all proceeds of the local sales tax collection.
It should be noted that the bill requires the State to start accepting and processing application by October 1, 2021. Based upon this date, the State will not see any revenue until FY2022. It is also assumed that it will be a year before the recreational cannabis industry can establish the essential business infrastructure to sell recreational cannabis to consumers. Based upon this assumption, it is estimated that recreational cannabis sales will start in January 1, 2023. It is projected that the State would start receiving revenue from the excise tax in February 2023 and the local municipalities would receive revenue from sales taxes in April 2023.
The estimated revenue from the legalization of recreational cannabis in the West Virginia is as follows:
• FY2022: $100,000 in license/application fees.
• FY2023: $2.7 million in Excise Taxes, $1.4 million in local sales taxes, and $100,000 in license/application fees.
• FY2024: $6.0 million in Excise Taxes, $3.6 million in local sales tax, and $100,000 in license/application fees
• FY2025: $6.9 million in Excise Taxes, $4.5 million in local sales taxes, and $100,000 in license/application fees.
• FY2026: $7.6 million in Excise Taxes, $4.2 million in Sales Taxes, and $100,000 in license and application fees
It is estimated that the State will start collecting application fees from recreational dispensaries and growers/processors in June 2022. Cannabis sales are estimated to start in January 2023 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.
The Department of Commerce would administer this new program. Therefore, administrative costs would be reflected in a separate fiscal note from the Department of Commerce.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2021
Increase/Decrease
(use"-") |
2022
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
0 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
0 |
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 and would allow county governments the option of allowing production and sale on cannabis within county borders. The legislation would levy an excise tax of 17.5 percent on the sale of price of cannabis to benefit the Cannabis Transfer Tax Fund and would impose a local sales tax of 6 percent but not subject such sales to the regular State sales tax. The proposed bill also provides for licensing, renewal, and application fees, among others, for the operation of cannabis establishments.
Of excise tax collections deposits into the Cannabis Transfer Tax Fund, 25 percent will be deposited into the Teacher Compensation & Public Employees Insurance Agency Stability Fund, 35 percent will be deposited into the Best Virginia Infrastructure Fund, 15 percent will be allocated to the Law Enforcement and Community Fund, 15 percent will be allocated to the Entrepreneur and Small Business Fund, and 10 percent to the Respect your Elders Fund. License and application fees will be deposited into the Cannabis Transfer Tax Fund. The proposed local sales tax of 6% would be collected at the point of sale by the licensed retail cannabis store. The municipality shall receive all proceeds of the local sales tax collection.
It should be noted that the bill requires the State to start accepting and processing application by October 1, 2021. Based upon this date, the State will not see any revenue until FY2022. It is also assumed that it will be a year before the recreational cannabis industry can establish the essential business infrastructure to sell recreational cannabis to consumers. Based upon this assumption, it is estimated that recreational cannabis sales will start in January 1, 2023. It is projected that the State would start receiving revenue from the excise tax in February 2023 and the local municipalities would receive revenue from sales taxes in April 2023.
The estimated revenue from the legalization of recreational cannabis in the West Virginia is as follows:
• FY2022: $100,000 in license/application fees.
• FY2023: $2.7 million in Excise Taxes, $1.4 million in local sales taxes, and $100,000 in license/application fees.
• FY2024: $6.0 million in Excise Taxes, $3.6 million in local sales tax, and $100,000 in license/application fees
• FY2025: $6.9 million in Excise Taxes, $4.5 million in local sales taxes, and $100,000 in license/application fees.
• FY2026: $7.6 million in Excise Taxes, $4.2 million in Sales Taxes, and $100,000 in license and application fees
It is estimated that the State will start collecting application fees from recreational dispensaries and growers/processors in June 2022. Cannabis sales are estimated to start in January 2023 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.
The Department of Commerce would administer this new program. Therefore, administrative costs would be reflected in a separate fiscal note from the Department of Commerce.
Memorandum
The stated purpose of this bill is to legalize cannabis, provide for taxation of cannabis, and allow cannabis market activity as regulated by the Department of Commerce.
An excise tax is levied upon “cannabis sold or otherwise transferred” by a cannabis cultivation facility to a cannabis product manufacturing facility or to a retail cannabis store at the rate of 17.5 percent of the sales price. The term “sales price” is not defined, nor does the bill explain how a sales price will be determined if the cannabis is “otherwise transferred” rather than sold. Although the Department of Commerce is authorized to establish procedures for collection and may promulgate legislative rules necessary to administer collection and enforcement of monthly tax collections, the language of the bill does not limit that authorization to only the excise tax, nor does it provide for any appeal rights or refund claims.
The title of the bill states that the Department of Revenue is authorized to promulgate rules and administer tax collections. The bill does not give such authorization. The bill designates the Department of Commerce to regulate and administer the act. The definitions define “Department” as the Department of Commerce.
The bill defines “Department” as “the Department of Commerce or its assigned or successor agency.” The bill defines “Secretary” as “the Secretary of the Department of Commerce.” The Tax Commissioner or the Tax Department are not mentioned at all, and are not given any authority or duties under this bill.
A provision of this bill may run afoul of the Streamlined Sales and Use Tax Agreement as codified in article 15B of Chapter 11 of this code. The agreement requires the Tax Commissioner to collect and administer local sales and use taxes under W. Va. Code §11-15B-33. Having the local sales tax on cannabis collected and administered by the Department of Commerce may violate West Virginia’s obligations under the SSUTA.
On or before June 1, 2021, the Secretary of Commerce shall promulgate legislative rules. With such a timeline, the bill should state emergency rules. June 1, 2021 does not allow enough time for the required procedure to promulgate the rules. Further, legislative rules can only be approved by the Legislature, which would next meet in 2022.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov