OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 (860) 240-0200

http://www.cga.ct.gov/ofa

HB-7320

AN ACT CONCERNING A STUDY BY THE COMMISSION ON ECONOMIC COMPETITIVENESS OF STATE TAX, REVENUE AND BONDING POLICIES.

AMENDMENT

LCO No.: 8717

File Copy No.: 736

House Calendar No.: 497


OFA Fiscal Note

State Impact:

Agency Affected

Fund-Effect

FY 18 $

FY 19 $

FY 20 $

Department of Revenue Services

GF - Revenue Gain

None

61 million

115 million

Department of Revenue Services

GF - Cost

None

249,853

124,853

State Comptroller - Fringe Benefits1

GF - Cost

None

See Below

See Below

Consumer Protection, Dept.

GF - Cost

None

See Below

See Below

Consumer Protection, Dept.

GF - Revenue Gain

None

See Below

See Below

Resources of the General Fund

GF - See Below

None

See Below

See Below

Note: GF=General Fund

Municipal Impact: None

Explanation

The amendment strikes the underlying bill and its associated fiscal impact.

The amendment, which legalizes recreational marijuana, is anticipated to result in a revenue gain to the General Fund of $61 million in FY 19, with tax administration costs to the state of $297,397 in the same fiscal year. The fiscal impacts are described below.

Taxation. Sections 20 and 21 result in a significant tax revenue gain by allowing the retail sale of marijuana effective July 1, 2018 and applying the 6.35% general sales tax and a 23.65% gross receipts tax on retail sales. Assuming it takes the Department of Consumer Protection (DCP) one year to develop necessary regulations, it is anticipated that the amendment would result in a revenue gain of $61 million in FY 19, $115 million in FY 20, and $172 million in FY 21.

To administer the newly established tax, the Department of Revenue Services (DRS) would require one Tax Corrections Examiner ($58,640 for salary and $22,330 for fringe costs) to verify the accuracy of return information and one Revenue Examiner ($66,213 for salary and $25,214 for fringe costs) for audit and enforcement.  This estimate is based on the administrative requirements of other state trust taxes.

The DRS would also incur a one-time cost of approximately $125,000 in FY 19 for form development and printing, changes to the online Taxpayer Service Center (TSC) associated with electronic filing, programming changes to the agency's Integrated Tax Administration System (ITAS), and mailing expenses.

Licensing and Regulation. The amendment's licensing provisions result in costs to the General Fund that will be entirely offset or surpassed by licensing fee revenue. Therefore, these provisions will either have no net fiscal impact or a potential revenue gain. It is anticipated such costs will total $1.2 million in FY 19 ($895,360 to DCP and $304,640 in fringe benefits), and $4.2 million in FY 20 ($3,119,935 to DCP and $1,080,065 in fringe benefits), and annually thereafter. The license categories established are: (1) marijuana retailer, (2) marijuana lounge, (3) marijuana cultivation facility, (4) marijuana production manufacturing facility, (5) laboratory, and (6) laboratory employee.

There is no fiscal impact from the requirements that the Liquor and Marijuana Control Commission and DCP adopt marijuana regulations (required by the Sections above as well as Section 16). Regulations are adopted in the normal course of operations.

There is no fiscal impact anticipated from the requirement that a portion of licensure and registration fees be used on educational programs serving students in grades K-12. It is anticipated fees will be set at a level to cover both enforcement costs and such educational programs.

Criminal Penalties. The amendment eliminates penalties associated with the possession of marijuana and results in a revenue loss from criminal penalties.  However, the amendment adds marijuana to various sections of criminal statue including operating motor vehicles or vessels and results in revenue gain from new offenses.

Municipalities. Section 14 allows municipalities to restrict or allow the presence of a retail marijuana facility in town. This has no fiscal impact.

OUT YEARS

The tax revenue projections listed above are anticipated to incur significant growth in based on tax revenue collections on retail marijuana sales in other states with similar policies.1 The impacts identified above associated with state personnel would continue into the future subject to inflation and the extent of enforcement.

1 Tax data from the Colorado Department of Revenue shows a growth of approximately 33% in sales tax revenue when comparing July 2015 to March 2016, to July 2016 to March 2017.

The preceding Fiscal Impact statement is prepared for the benefit of the members of the General Assembly, solely for the purposes of information, summarization and explanation and does not represent the intent of the General Assembly or either chamber thereof for any purpose. In general, fiscal impacts are based upon a variety of informational sources, including the analyst's professional knowledge. Whenever applicable, agency data is consulted as part of the analysis, however final products do not necessarily reflect an assessment from any specific department.

1 The fringe benefit costs for most state employees are budgeted centrally in accounts administered by the Comptroller. The estimated active employee fringe benefit cost associated with most personnel changes is 38.08% of payroll in FY 18 and FY 19.