The amount of local sales tax on recreational marijuana could be restricted under a legal interpretation recently published by the Missouri Department of Revenue.

Under the 2022 constitutional amendment legalizing recreational marijuana in Missouri, any local government is allowed to place an extra 3 percent sales tax on recreational marijuana, which would be in addition to all other sales taxes. Following that amendment, the governments of Warren County and the city of Warrenton both placed their own 3-percent marijuana taxes on April election ballots for voter approval.

Local officials had interpreted those tax proposals to be additive, meaning recreational marijuana sold in Warrenton would have cost an extra 6 percent in addition to all other sales taxes.

However, the state office in charge of collecting sales taxes now says it may not allow city and county governments to “stack” those extra taxes on marijuana, according to a letter distributed to local governments in early February. The letter indicates that a city and a county can’t both collect taxes from the same marijuana business. The tax would go to one government office or the other, based on where the marijuana is sold. If it’s sold inside a city, the city’s tax applies; if it’s sold outside a city, the county’s tax applies.

Furthermore, county governments couldn’t ever collect sales tax from a marijuana business located inside a city boundary, even if the city doesn’t have its own marijuana tax, according to the letter from the Missouri Department of Revenue.

This would be a significant departure from how sales tax normally works, which is that taxes from city, county and state governments all add on to one another.

What it all means

The practical impact for local residents is that they would pay less for recreational marijuana under this interpretation. At the moment, that savings would come entirely out of tax revenue that the Warren County government was hoping to collect.

That’s because the only licensed marijuana business in Warren County is the Proper Cannabis store located inside Warrenton’s city limits. Originally a medical marijuana dispensary, Proper Cannabis has now received state licensing as a recreational marijuana seller, city officials told The Record.

According to the letter distributed to local governments, the city government can place a voter-approved 3-percent tax on Proper Cannabis’s sales, but the county government can’t.

However, Presiding County Commissioner Joe Gildehaus said county governments around Missouri are pushing back against that interpretation. Representatives of the Missouri Association of Counties are currently negotiating over the Department of Revenue’s ruling with state officials in Jefferson City, Gildehaus said. 

Over 70 counties have placed a marijuana tax on the ballot, Gildehaus added.

Their pushback might have already had an effect, with the St. Louis Post-Dispatch reporting that the Department of Revenue was indicating late last week that it would let courts decide how to interpret the tax provisions of the marijuana amendment.

Changing the math

When Warrenton and Warren County first proposed their marijuana sales taxes, The Record reported that the sales tax rate could rise to as high as 21.5 percent. Here’s how that was calculated:

• 9.5 percent — Regular state, county, and city sales taxes that are applied to all sales.
• 6 percent — Automatic special tax on recreational marijuana that goes to the state government.
• 3 percent — Special tax for the county government that requires voter approval.
• 3 percent — Special tax for the city government that requires voter approval.

However, if the state government doesn’t allow city and county taxes to stack, the sales tax on marijuana in Warrenton would be capped at 18.5 percent, and could remain as low as 15.5 percent, depending on which tax propositions voters approve or reject in April.

Where the ruling comes from

In its letter to local governments, the Missouri Department of Revenue says its ruling on marijuana taxes came from the language of the 2022 constitutional amendment legalizing recreational marijuana.

The amendment, which was approved by voters in November, says that local governments are allowed to levy an extra 3 percent sales tax. However, it doesn’t specify whether “local government” includes both cities and counties.

The Department of Revenue said its interpretation is that voters only intended to allow for a total local sales tax of 3 percent, not two local taxes which add up to 6 percent. To that end, the department could prevent cities and counties from overlapping their marijuana sales taxes.