Marijuana legalization could mean millions in tax revenue for Florida, Alaska, and others
States such as Alaska, Florida and Oregon stand to collect millions in marijuana tax revenue if they legalize the drug on Nov. 4. That鈥檚 when citizens聽in Alaska, Florida, Oregon and Washington, D.C., will聽聽on marijuana initiatives. Across the country, states could gain聽more than聽$3 billion in new tax revenue from legal marijuana sales, according to a new analysis by NerdWallet.
Colorado, the first state to allow the sale of recreational marijuana, is expected to take in $60 million to $70 million聽聽in taxes from legal pot sales, according to the Denver Business Journal. Cash-strapped states stand to collect millions if they legalize the drug. Across the U.S., states could gain just over聽$3 billion in tax revenue from legal marijuana sales, according to a new analysis by NerdWallet.
What鈥檚 your state鈥檚 piece of the pie?
Trends and takeaways
- The U.S. stands to gain, according to our calculations, $3,098,866,907聽in state and local taxes per year 鈥� that鈥檚 more than聽聽the entire budget of the Small Business Administration in 2013.
- California could gain the most from taxes on sales of marijuana. The state stands to take in $519,287,052, which almost covers the 2013聽聽for the California Department of Parks and Recreation.聽
Methodology
How we sized聽the marijuana market in each state:聽Marijuana use is illegal in most states, so it鈥檚 difficult to get concrete numbers on the amount of marijuana purchased and consumed. To estimate this value, we used data from the聽聽detailing the percentage of marijuana smokers ages 25 and over in each state and multiplied that percentage by the state鈥檚 population older than 25 to get the number of users in each state. We then took the state鈥檚 users as a percentage of total users over 25 in the U.S. and multiplied that by the total marijuana market estimate (sized at聽聽by聽Harvard University economist Jeffrey Miron) to determine the market size聽in each state.
How we calculated state sales tax revenue:聽We used state and local tax rates compiled by the nonpartisan聽聽to estimate the amount each state would earn in sales tax revenue. We added in a 15% excise tax (a tax levied on a specific good, such as cigarettes or gas), which is the excise tax in Colorado for marijuana purchases. 聽For the full formula, see the聽聽of this article.
NerdWallet鈥檚 estimates are conservative. This analysis doesn鈥檛 account for several factors, including:
- Variations in excise taxes: Each state will determine its own taxes, but for our calculations, we assumed the same 15% excise tax that Colorado collects across all states.
- Reduced spending on law enforcement: We didn鈥檛 include the money states would save by not having to enforce laws against the use of marijuana. Miron, the Harvard economist, estimates a savings of $7.7 billion annually nationwide on law enforcement.
- Medical marijuana sales: We didn鈥檛 deduct the amount of revenue raised in states that have legalized medical marijuana. 聽The total revenue we calculated for California, for example, includes revenue they already make from medical marijuana sales.
- Potential market changes: If marijuana becomes legal for wider recreational use, consumption could increase, which would make our current market estimates low.
How much has聽Colorado made since legalizing marijuana? In the first six months of this year, the state collected聽in taxes on the sales of marijuana. By June 2015, Colorado expects to collect up to $70 million鈥攏ot very far off from our estimate of $78,157,904.
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