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State Marijuana Taxation Upheld by Courts...For Now

Despite a Colorado court upholding marijuana taxation, buyers are still at risk for self-incrimination at the federal level.

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By Desiree Bowie

08/26/14

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State and federal governments have created a major marijuana catch-22 with the taxation of marijuana sales. On the one hand, if the states charge sales tax on marijuana it violates the buyer’s Fifth Amendment rights, or the right to not incriminate yourself. With marijuana taxation, however, buyers are forced to disclose their identity and risk federal prosecution for buying a drug that is federally illegal to possess despite state laws.

So far a Colorado tax on marijuana has been upheld by a state court despite claims that paying it amounts to self-incrimination violating the Fifth Amendment. Plaintiffs wanted taxes on recreational pot outlawed, reasoning that they require businesses and consumers to implicate themselves in federal crimes.

The plaintiffs lost their attempt at acquiring an injunction, but the lawsuit is far from over. The lawsuit challenging the taxes is quite clear: by making the buyer of marijuana pay these taxes the government is forcing the buyer to admit to the government that they are violating federal law. While the lawsuit has legs, it has been difficult procuring witnesses to testify because the testimony would be incriminating as well.

Under federal law, marijuana is still illegal and a controlled substance, even for medical use. And the gulf between federal law and recreational marijuana seems even bigger, with the tax problems of the industry remaining a major impediment.

In 2013, Rep. Jared Polis (D-CO) and Rep. Earl Blumenauer (D-OR) introduced two pieces of legislation to de-federalize marijuana policy and create a framework for the federal taxation of marijuana. Polis’ Ending Federal Marijuana Prohibition Act would remove the Drug Enforcement Agency’s authority over marijuana and allow states to choose whether to allow marijuana for medicinal or recreational use. Blumenauer’s Marijuana Tax Equity Act would create a federal excise tax on marijuana. Together, these bills would provide a system of regulation and taxation for marijuana in states where it is legal.

Colorado’s tax law is bringing in considerable revenue, and that may influence attempts to derail the law. Early reports suggested that the taxes might be attacked as unconstitutionally high. But the Fifth Amendment assertions are more sophisticated. As medical marijuana has gained widespread acceptance and now recreational marijuana is taking hold, the federal versus state conflict only grows deeper.

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