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The 'Quirk' in Colorado's Constitution That Spells Major Trouble for Marijuana Tax Revenue

"It's a bizarre turn of events that's taken many by surprise."

In this Dec. 5, 2013, photo marijuana matures in ideal conditions at the Medicine Man dispensary and grow operation in northeast Denver. As Colorado prepares to be the first in the nation to allow recreational pot sales, opening Jan. 1, hopeful retailers are investing their fortunes into the legal recreational pot world, all for a chance to build even bigger ones in a fledgling industry that faces an uncertain future. (AP Photo/Ed Andrieski) AP Photo/Ed Andrieski

A quirk in Colorado's state constitution could mandate the return of the taxes collected through the sale of legal marijuana, according to NPR.

The irony in this situation is, of course, the fact that the tax revenue — which will be used for a range of activities including education and drug rehabilitation — was one of the reasons touted for the legalization for the drug in the first place.

"Legalize it and tax it. That was the mantra of the pot movement in Colorado and one of the big reasons voters approved legalization," reported NPR's Ben Marcus. "But now thanks to a provision in the state constitution known as the Taxpayer's Bill of Rights, all of the tax money must be given back. It's a bizarre turn of events that's taken many by surprise."

Tim Hoover of Colorado Fiscal Institute, a left-of-center group, told the outlet that the Taxpayer's Bill of Rights — an amendment to the state's constitution — requires state officials to ask residents to approve new taxes and, in the process, the state must provide an estimate of how much revenue would come in as a result, as well as the taxes that would be raised without it.

File - In this Dec. 5, 2013 file photo, marijuana matures at the Medicine Man dispensary and grow operation in northeast Denver. Colorado voters still support the state law that legalized recreational marijuana, but most believe it is hurting the image of the state, according to a new poll released Monday, Feb. 10, 2014. The Quinnipiac University Poll found that 51 percent of voters overall believe the measure is bad for the state's reputation, while 38 percent see it as a net positive. (AP Photo/Ed Andrieski, file) AP Photo/Ed Andrieski, file AP Photo/Ed Andrieski

In the case of marijuana, a "quirk" in the constitution is complicating things. And here's why: while pot sales were disappointing and lower than expected, state revenues actually came in higher than what was estimated.

In the end, this might not seem problematic, but, as Hoover explained, the constitutional provision requires that the monies be returned if the aforementioned estimates prove inaccurate.

"If you're wrong on either of those things — if in fact there's more revenue — then you've got to refund all of the new revenue from that new tax," he said. "There is no bonanza of pot sales. You might call it a low-nanza. It's less — well less than what was projected. And the refunds are being caused by legal fine print in the Taxpayer's Bill of Rights."

Earlier this month, the Associated Press called the tax problem "a situation so bizarre that it's gotten Republicans and Democrats, for once, to agree on a tax issue," explaining that the Taxpayer's Bill of Rights was passed by voters back in 1992.

Under the constitutional amendment, lawmakers must return tax revenue to residents when more money is collected than allowed by a formula based on population growth and inflation — and this isn't the first time that this has happened, the AP reported.

So, lawmakers are faced with a conundrum.

While the nearly $60 million raised could be issued through small refunds to anyone who pays income tax in Colorado, another option is to charge no tax for a year on marijuana products. A third avenue would be to go back to voters to ask them for permission to keep the tax revenue that was collected.

Listen to an NPR report below for the details:

Marijuana tax revenue has been somewhat disappointing, bringing in just under $59 million instead of the nearly $100 million that some projected, though this is new revenue that was not previously flowing into the budget.

One last thing…
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