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The current financial crisis hitting the United States has made the idea of legalizing and taxing marijuana much more attractive for debt-ridden states. California proponents claim they could generate more than a billion dollars by legalizing and taxing marijuana distribution and save millions more by reducing law enforcement costs on prohibition enforcement. But Vanderbilt University Law School professor Robert Mikos explains in a new paper why the seemingly clear way to make money by legalizing and taxing marijuana distribution has too many legal hurdles to actually work.
“People in favor of taxing marijuana distributors are grossly underestimating the difficulty of collecting a tax on a drug that remains illegal under federal law,” said Mikos.
Mikos writes that the federal ban on marijuana would cripple a state’s ability to collect taxes for two reasons. First, the federal ban would encourage marijuana distributors to remain small and continue to operate underground. This prevents states from being able to monitor or tax the distributors.
“Thousands of suppliers now compete on the marijuana market, and that’s unlikely to change, even if a state repeals its own marijuana ban,” said Mikos. “Trying to track them down and monitor their businesses would be incredibly difficult and expensive.”
Second, even if states could successfully monitor marijuana distributors, any information collected by the state could be used by federal law enforcement to prosecute marijuana dealers. The states need to monitor marijuana distribution to collect any tax, but doing so could backfire. “Federal law enforcement officials could use any information the states gather, for example, lists of licensed dealers, to track down and sanction marijuana distributors,” Mikos said. The federal ban would thus encourage distributors to evade state tax collectors as well as federal law enforcement officials.
Mikos’ article is the first to explain the daunting legal hurdles posed by federal law on this hot button issue. You can read his full paper by clicking here or logging onto http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1549828.
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