FISCAL NOTE
Date Requested: February 15, 2022
Time Requested: 05:37 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2668 |
Introduced |
HB4745 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
Cannabis Transfer Tax Fund; Public Employees Insurance Agency Stability Fund; General Revenue Fund and Local Governments
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 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. The bill provides for a legislative purpose and findings. The bill defines certain terms. The bill legalizes the possession of one ounce or less of cannabis and cannabis products by adults. The bill authorizes a special excise tax on cannabis. The bill creates a new fund and dedicates proceeds of the fund, including funding for PEIA, for orphan roads, and for the Herbert Henderson Office of Minority Affairs. The bill provides that current laws relating to employment, vehicle operation, underage use or private property use are preserved. Finally, the bill is not intended to alter the West Virginia Medical Cannabis Act.
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 legislation would levy an excise tax of 15 percent on the sales price of cannabis to benefit the Cannabis Transfer Tax Fund, a special fund, and would impose sales tax at the point of sale. Of excise tax collections deposited into the Cannabis Transfer Tax Fund, 50 percent will be deposited into the Public Employees Insurance Agency (PEIA) Stability Fund. The remaining 50 percent of the revenue would be used for the following: for improvement of West Virginia infrastructure and infrastructure projects; to create a program to assist with orphan roads from the West Virginia Division of Highways (WVDOH) every five years; to increase the budget for the Herbert Henderson of Minority Affairs to an additional $100,000 per year; and to add a budget line item for the Minority Office of Health to $250,000 for every year.
The estimated revenue from the legalization of recreational cannabis in West Virginia is as follows:
• FY 2023: $2.3 million in Excise Taxes; $1.4 million in state sales taxes; $241,000 in local sales taxes.
• FY 2024: $5.2 million in Excise Taxes; $3.7 million in state sales taxes; $612,000 in local sales taxes.
• FY 2025: $5.9 million in Excise Taxes; $4.5 million in state sales taxes; $749,000 in local sales taxes.
• FY 2026: $6.5 million in Excise Taxes; $4.2 million in state sales taxes; $704,000 in local sales taxes.
Based on estimated excise tax collections for FY 2024, $1.1 million would be distributed to the PEIA Stability Fund; $400,000 to infrastructure; $400,000 to WVDOH; $100,000 to Office of Minority Affairs; and $250,000 to the Minority Office of Health.
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 $91,500 in FY 2023 and $45,000 in subsequent fiscal years.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2022
Increase/Decrease
(use"-") |
2023
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
91,500 |
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 |
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 legislation would levy an excise tax of 15 percent on the sales price of cannabis to benefit the Cannabis Transfer Tax Fund, a special fund, and would impose sales tax at the point of sale. Of excise tax collections deposited into the Cannabis Transfer Tax Fund, 50 percent will be deposited into the Public Employees Insurance Agency (PEIA) Stability Fund. The remaining 50 percent of the revenue would be used for the following: for improvement of West Virginia infrastructure and infrastructure projects; to create a program to assist with orphan roads from the West Virginia Division of Highways (WVDOH) every five years; to increase the budget for the Herbert Henderson of Minority Affairs to an additional $100,000 per year; and to add a budget line item for the Minority Office of Health to $250,000 for every year.
The estimated revenue from the legalization of recreational cannabis in West Virginia is as follows:
• FY 2023: $2.3 million in Excise Taxes; $1.4 million in state sales taxes; $241,000 in local sales taxes.
• FY 2024: $5.2 million in Excise Taxes; $3.7 million in state sales taxes; $612,000 in local sales taxes.
• FY 2025: $5.9 million in Excise Taxes; $4.5 million in state sales taxes; $749,000 in local sales taxes.
• FY 2026: $6.5 million in Excise Taxes; $4.2 million in state sales taxes; $704,000 in local sales taxes.
Based on estimated excise tax collections for FY 2024, $1.1 million would be distributed to the PEIA Stability Fund; $400,000 to infrastructure; $400,000 to WVDOH; $100,000 to Office of Minority Affairs; and $250,000 to the Minority Office of Health.
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 $91,500 in FY 2023 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. The bill provides for a legislative purpose and findings. The bill defines certain terms. The bill legalizes the possession of one ounce or less of cannabis and cannabis products by adults. The bill authorizes a special excise tax on cannabis. The bill creates a new fund and dedicates proceeds of the fund, including funding for PEIA, for orphan roads, and for the Herbert Henderson Office of Minority Affairs. The bill provides that current laws relating to employment, vehicle operation, underage use or private property use are preserved. Finally, the bill is not intended to alter the West Virginia Medical Cannabis Act.
An apparent technical flaw exists wherein §16A-17-4(b) states that, “All revenues received from licensees pursuant to §16A-17-7(a) of this code shall be deposited with the State Treasurer and placed in the Cannabis Transfer Tax Fund.” There is no section 7 in this bill. The reference should likely be to §16A-17-4(a).
Otherwise, the fund shall be an interest-bearing account with interest to be credited to and deposited in the fund.
Presumably, funds deposited into the Cannabis Transfer Tax Fund over and above $350,000 each year are to go toward the two other endeavors. First, an undesignated amount or proportion of funds is to go to “improvement of West Virginia infrastructure and infrastructure projects, including but not limited to childcare assistance.” With no further guidance, the Tax Department is left to decide how this will be done. Second, a program is to be created to “assist with orphan roads” that shall be given assistance by the Division of Highways “every five years. How much money goes toward this program – every five years? This is unreasonably broad and unclear.
The heading for §16A-17-4 refers to “sales tax;” but sales tax is not noted in the bill title, nor is it addressed in the body of the bill.
Since the retail sale of cannabis is to be legal, the collection and remittance of state and local sales tax for all retail sales of cannabis is assumed.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov