When the details of the legislation were first made public last week, there were reports almost immediately that the proposed initial 10 percent tax rate was too low for Governor Phil Murphy.
That 10 percent rate would be the lowest in the country among states that allow recreational marijuana sales.
Determining the appropriate rate requires legislators to weigh two critical but competing factors: revenue versus black market. It’s an issue directly addressed in the bill:
To encourage early participation in and development of [marijuana] cannabis establishments and to undermine the illegal marketplace, the tax shall be 10 percent
One of the reasons to legalize use of marijuana is to eliminate the black market. However, when other states set high taxes rates, consumers stayed with the black market.
For example, Colorado intially had a 29 percent tax rate, Alaska and Oregon charged 25 percent and Washington was the highest tax rate at 37 percent, according to data from the Tax Foundation.