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May 30, 2024 |  By: Rudi Keller - Missouri Independent

2nd Missouri judge rules counties can stack taxes at marijuana dispensaries

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By Rudi Keller - Missouri Independent

Buchanan County can collect a special marijuana sales tax on dispensaries within St. Joseph city limits, a judge ruled Wednesday in the second decision granting counties the right to stack taxes on top of city levies.

Circuit Judge Daniel Kellogg wrote in his two-page ruling that provisions in the recreational marijuana constitutional amendment passed in 2022 do not limit the taxing power of counties within corporate limits of towns and cities.

“To put it bluntly, the court cannot accept (the) plaintiff’s interpretation of ‘Local Government’ to prohibit the power of the county to impose such tax within the Saint Joseph city limits,” Kellogg wrote. “The definition of ‘Local Government’ includes both the city and the county. As such, both are authorized to impose and collect the tax.”

Vertical Enterprises, which is licensed for retail sales, cultivation and marijuana product manufacturing in St. Joseph, sued the Buchanan County Collector’s office, the Missouri Department of Revenue and the Buchanan County Clerk’s office to block enforcement of the tax.

Along with regular sales taxes – which in some locations approach 12% – people purchasing marijuana for recreational use also pay a special 6% state tax and a local tax of 3% if approved by voters.

The ruling will cost Vertical’s customers about $30,000 a month, said Chris McHugh, CEO of the company. There are two other dispensaries in St. Joseph and he estimated their tax payments would be comparable to his.

“Consumers should be outraged,” McHugh said. “They’re paying this.”

Statewide, consumers purchased $1.1 billion worth of marijuana in the first year of recreational use sales.

“This is millions and millions of dollars that never, never should be taken from consumers,” McHugh said. “It’s nothing but an anti-marijuana tax.”

McHugh said he will appeal Kellogg’s decision.

MoCann Trade, the industry lobbying organization, said in a statement from Executive Director Andrew Mullins, that excessive taxes on marijuana drive customers into the underground, unregulated market.

“Since Oct. 1, Missouri cannabis customers have been paying roughly $3 million more each month than what the Missouri Constitution requires,” Mullins said.

Drafters of the amendment legalizing marijuana wanted to prevent stacking, so they used the broad term “local government” for the entity authorized to impose a tax. To make it apply to both cities and counties, the term was defined as meaning “a village, town, or city” for incorporated areas and counties for unincorporated places.

But the revenue department, interpreting the new tax law, told local governments that county marijuana taxes may be stacked, making the local tax rate on marijuana purchases 6% in places where county and city voters have approved the levy.

Almost everywhere the tax has been on the ballot, it has passed, sometimes with overwhelming majorities as in Unionville in April, where it was backed by 73% of voters.

Regular sales taxes are stacked and consumers pay the 4.225% state rate plus the local taxes for counties, cities and special taxing districts. 

A 2023 notice from the department’s Taxation Division stated that the section of the constitution authorizing the tax states that any successful vote is applicable to the “political subdivision” where it was enacted.

The amendment did not define “political subdivision,” the notice stated.

“The distinction between local government and political subdivision is important as voters in the entire county will authorize the additional tax, not just voters in the unincorporated area,” the notice stated. “And practically, counties do not otherwise limit the applicability of their sales taxes based on geography.”

The interpretation generated both the lawsuit in Buchanan County and another in St. Louis County. In a ruling that is being appealed, St. Louis County Circuit Judge Brian May wrote that the interpretation offered by the plaintiff in that case, Robust Missouri 3 LLC, operator of a dispensary in Florissant, could have unintended consequences.

“If [Robust’s] interpretation were accepted, then a municipality or city would essentially be given carte blanche to ignore any county ordinance or regulation, including those related to public health and safety wholly unrelated to the taxing issue,” May wrote in the ruling.

Getting the same result from two courts shows the strength of the argument that the taxes can be stacked, said Steve Hobbs, executive director of the Missouri Association of Counties.

“From the very beginning, our position was absolutely that the constitutional amendment left this avenue open,” Hobbs said. “We’re really satisfied that, you know, our position was proved correct in two places.”

The trial court decisions aren’t controlling precedent and neither Hobbs nor McHugh said the cases would end at the courts of appeals.

“Everyone understands this is going to end up at the (Missouri) Supreme Court,” McHugh said, “so we’ve got to go through the process.”