Adams County may have to re­turn $500K in taxes fund­ing schol­ar­ships

The Denver Post - - FRONT PAGE - By Jesse Paul

Adams County has been im­prop­erly col­lect­ing a 3 per­cent sales tax on recre­ational mar­i­juana since July 2015, the Colorado Court of Ap­peals ruled Thurs­day, and may have to re­fund hun­dreds of thou­sands of dol­lars.

The court found the voter-ap­proved spe­cial pot sales tax is in­valid, re­vers­ing a low­er­court de­ci­sion and sid­ing with the ci­ties of North­glenn, Aurora and Com­merce City, which sued over the tar­iff.

“We hold that Adams County does not have ei­ther con­sti­tu­tional or statu­tory au­tho­riza­tion to im­pose a spe­cial sales tax on re­tail mar­i­juana,” the court rul­ing filed Thurs­day said.

That leaves all of the money col­lected by the tax in limbo — in­clud­ing more than $500,000 ear­marked for col­lege schol­ar­ships for un­der­priv­i­leged stu­dents — while the county de­cides what to do next. The ex­act amount col­lected was not im­me­di­ately avail­able, but Adams County in­cluded $1.2 mil­lion in pro­jected rev­enues from the tax in its 2017 bud­get.

The hand­ful of re­tail­ers who sell recre­ational pot in the county said re­mov­ing the tax makes them more com­pet­i­tive with stores in ci­ties where the tax rate is lower. And at least one ob­server says the rul­ing could have

greater ram­i­fi­ca­tions statewide, in­flu­enc­ing is­sues other than mar­i­juana sales.

The ci­ties had ini­tially sued in district court, claim­ing Adams County didn’t have the author­ity un­der state law to tax a sin­gle prod­uct. Cou­pled with their own taxes on pot, the ci­ties ar­gued that an ad­di­tional county levy put re­tail cannabis re­tail­ers in their ju­ris­dic­tions at a com­pet­i­tive dis­ad­van­tage.

A judge ruled in Adams County’s fa­vor in fall of 2015, and the ci­ties ap­pealed.

More than $500,000 of the taxes col­lected were used to fund four-year schol­ar­ships for 50 low-in­come Adams County stu­dents. The county com­mis­sion­ers were hop­ing to put $1 mil­lion from the tax into the Adams County Schol­ar­ship Fund.

A county spokesman said the schol­ar­ships that have been awarded will not be af­fected. Of­fi­cials also said they don’t know how quickly the county will stop col­lect­ing the tax.

“This is fairly mo­men­tous de­ci­sion with im­pli­ca­tions be­yond mar­i­juana,” said Kevin Bom­mer, deputy di­rec­tor of the Colorado Mu­nic­i­pal League. “The Court of Ap­peals has clearly stated that any county lacks the statu­tory or con­sti­tu­tional author­ity to im­pose a spe­cial sales tax on mar­i­juana. What it clearly re­in­forces is that coun­ties have only the author­ity in which the gen­eral assem­bly has given them spe­cific per­mis­sion. The statutes have to say, ‘Coun­ties are au­tho­rized to …’ ”

Since the court ruled the tax was in­valid from the start, it’s likely Adams County will have to find a way to re­turn the money, Bom­mer said.

The rul­ing did not spec­ify how the funds should be han­dled, and the county did not have an­swers Thurs­day.

The Court of Ap­peals said in its rul­ing that Adams County’s spe­cial tax vi­o­lates the con­sti­tu­tional struc­ture cre­ated by Amend­ment 64, which le­gal­ized the sale, pos­ses­sion and con­sump­tion of mar­i­juana for recre­ational uses. It also re­jected the county’s claim that since the tax was passed by an elec­tion, the court did not have the author­ity to over­turn the re­sults.

“We re­ject this ar­gu­ment be­cause whether the county held a valid elec­tion is ir­rel­e­vant to whether it had the leg­isla­tive power to im­pose a spe­cial sales tax,” the or­der said. “Un­less the Gen­eral Assem­bly or Colorado Con­sti­tu­tion au­tho­rized the county to im­pose such a tax, the county sim­ply does not have the power to en­act such a tax, ir­re­spec­tive of a valid elec­tion.”

Bom­mer said the de­ci­sion could com­pli­cate things for Pue­blo County, which also has a spe­cial mar­i­juana tax.

“Pue­blo County has got a prob­lem, in my opin­ion,” he said.

Adams County vot­ers ap­proved the 3 per­cent spe­cial sales tax on recre­ational pot sales in Novem­ber 2014, when there was still a mora­to­rium on cannabis re­tail­ing in un­in­cor­po­rated ar­eas. The mora­to­rium ex­pired later that year.

Aurora and North­glenn each col­lect a 2 per­cent sales tax on recre­ational mar­i­juana. Com­merce City — which only has one pot store — im­poses a 7 per­cent tax on the sale of all cannabis prod­ucts.

“It’s very good news,” said Shawn Cole­man, di­rec­tor of gov­ern­ment af­fairs for Ter­rapin Care Sta­tion, which has a recre­ational mar­i­juana shop on the Adams County side of Aurora. “Not just for the in­dus­try, but also for lo­cal gov­ern­ments that are look­ing at lo­cal taxes. It’s our po­si­tion that we wanted to make sure when our cus­tomers are pay­ing taxes at the counter, that those taxes are go­ing to their ben­e­fit. The money that was go­ing to Adams County was not go­ing to Aurora.”

Cole­man said the spe­cial tax is­sue was some­thing he has only seen in Aurora. There are four other Ter­rapin Care Sta­tion stores in Colorado.

The Adams County tax also cre­ated an eco­nomic dis­ad­van­tage for the Ter­rapin Care Sta­tion on East 33rd Av­enue and other stores be­cause it makes prod­ucts more ex­pen­sive.

The rul­ing “just al­lows us to be com­pet­i­tive with the other mar­kets,” said Der­rick Ledy, man­ager of bgood, which has a recre­ational mar­i­juana shop in North­glenn. “That’s some­thing we hear con­stantly: Why our tax is higher? It just gives us a bet­ter play­ing field.”

Re­mov­ing the tax will bring prices at bgood in North­glenn in line with prices at its Denver store and at other metro com­peti­tors, Ledy said.

“It would help us a lot, just be­ing able to match some of the prices,” he said.

Adams County spokesman Jim Siedlecki said county of­fi­cials are dis­ap­pointed with the court’s rul­ing.

“This was a tax that was ap­proved in ev­ery ju­ris­dic­tion in the county,” he said Thurs­day. “Es­sen­tially, this rul­ing right now puts in peril a schol­ar­ship op­por­tu­nity for low-in­come kids.”

A de­ci­sion on how to move for­ward with the rul­ing won’t be made un­til at least Jan. 3, when the county com­mis­sion is next set to meet, he said. The county could file an ap­peal with the Colorado Supreme Court, which might stay Thurs­day’s rul­ing.

North­glenn city at­tor­ney Corey Hoff­mann, said Adams County had been told the spe­cial sales tax was in­valid be­fore it went to vot­ers for ap­proval. He said the Colorado Court of Ap­peals ruled prop­erly against the tar­iff.

“My hunch is that it would have been bet­ter if North­glenn wouldn’t have found out about Adams County’s spe­cial sales tax by read­ing about it in the news­pa­per,” Hoff­mann said. “That’s my per­sonal opin­ion.”

Aurora’s city at­tor­ney did not re­spond to a re­quest for an in­ter­view and a Com­merce City spokes­woman said the city was pleased with the rul­ing.

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