The Alaska House Labor and Commerce Committee met last Thursday to review legislation updating the state’s marijuana laws and agreed to bring the proposed sales tax rate down to 6%.
The rate isn’t as low as the marijuana industry and Gov. Mike Dunleavy’s working group on marijuana recommended — which have pushed a 3% sales tax — but it was seen as positive progress in the ongoing effort to update tax laws that have been largely unchanged since Alaska voted to legalize in 2014.
Ryan Tunseth, the president of the Alaska Marijuana Industry Alliance, said on Monday he would continue to advocate for a lower rate but appreciated the change as House Bill 119 still faces a long path to becoming law.
“In general, I think it was a good thing that we got to six. The industry would like to see it be lower,” he said. “That said, our work is certainly not done. I fully expect that when and if this moves out of the House, the Senate Finance Committee is going to be difficult. We’re not out of the woods at all in any stretch of the imagination, but it’s a move in the right direction, and certainly, I think the state is becoming pretty aware [of the problems facing the industry].”
Alaska’s marijuana tax system has been the source of many headaches in the industry. That’s because the tax is charged on a by-weight basis at the grower level and doesn’t reflect the final sales price, potency or quality of the flower. Tunseth said it puts growers in a tough position as wholesale prices fall and is largely to blame for many tax delinquencies and exits from the industry altogether.
A working group convened by Gov. Mike Dunleavy proposed a 3% sales tax rate, which the Alaska Marijuana Industry Association and other advocates have backed as a much-needed reduction in the overall tax burden on the growing industry. The forecasted drop in total revenue made legislators nervous, given the dismal state of Alaska’s financial situation, and the rate was ramped up to 10% before the end of this year’s legislative session.
Those estimates, however, didn’t reflect changes already underway in Alaska’s marijuana industry. While mature bud is taxed at $50 per ounce, growers have increasingly turned to other product categories that are taxed at a lower rate — $12.50 per ounce for trim that’s used for pre-rolls, edibles and concentrates and $25 per ounce for immature and seedy bud, which is typically less desirable-looking than mature bud but can be as potent.
At a hearing in September, legislative aide Cody Rice provided more nuanced financial modeling that took the changing mix of products into account. That analysis found that the 10% sales tax would be a considerable increase in overall taxes on the industry, and he noted that if national legalization were to happen, then Alaska’s tax rate would be “wildly uncompetitive.”
At Thursday’s hearing, there were several options for a sales tax rate put forward by committee members ranging from 4% to 8% as well as other updates to pot law.
Fairbanks Democratic Rep. Ashley Carrick proposed many of the amendments, including one for a 4% sales tax and another for a 6% sales tax. Carrick said the 10% rate was a “real shock to the industry,” and she was interested in finding a workable compromise.
Labor and Commerce Committee Chair Rep. Jesse Sumner, R-Wasilla, opposed the 4% amendment, saying he was worried it would hurt the bill’s viability. He had previously moved to increase the tax rate to 10%, citing the state’s revenue picture.
Only Carrick and North Pole Republican Rep. Mike Prax voted in favor of the 4% sales tax measure. Sumner was joined by Reps. Stanley Wright, Zack Fields, Justin Ruffridge and Dan Saddler in opposing the measure.
Regarding the 6% sales tax, Saddler, R-Eagle River, said that he thought the 6% sales tax “might be giving too much away.” He said the 10% sales tax was defensible even though it was an overall increase in the industry’s tax burden.
Rep. Prax said he appreciated his colleagues’ desire to maximize state revenue of the industry but warned that the high rate is already causing problems for the industry and is incentivizing people to turn to the black market, which has been a continued thorn in the side of the legalized industry.
Rice, the legislative aide who had done the previous modeling, noted that the 6% sales tax rate still represented an increase in overall state revenue under most of the scenarios in his modeling.
Ultimately, the 6% sales tax rate passed on a vote of 4-3. Reps. Prax, Carrick, Ruffridge and Sumner voted in favor, while Reps. Saddler, Fields and Wright voted against it.
The committee also approved a handful of other amendments to update things for the industry. That included a move to quarterly deposits for marijuana taxes rather than the monthly payments currently required. They also approved moving from annual license renewals to biennial license renewals. Finally, they also approved a system allowing retailers to sell product back up the supply chain, allowing unsold product to be repurposed for things like pre-rolls, edibles or concentrates.
House Bill 119 remains in the House Labor and Commerce Committee. It still has a stop in the House Finance Committee before it can reach a vote and be passed over to the Senate.
Matt Acuña Buxton is a long-time political reporter who has written for the Fairbanks Daily News-Miner and The Midnight Sun political blog. He also authors the daily politics newsletter, The Alaska Memo, and can frequently be found live-tweeting public meetings on Twitter.
