Denver Auditor Dennis Gallagher disagrees with Mayor Michael Hancock's recreational marijuana tax target, arguing the city should seek a starting tax rate of 3.5 percent instead of the mayor's suggested 5 percent tax rate.
Gallagher warned Denver City Council members in a letter sent to Councilman Charlie Brown Monday, that the city's 5 percent tax rate plan risks sending users back to the "dark shadows of the black market."
"He wants the city to be very careful about not putting too much of a tax on it, because you (could) then defeat the purpose of what Amendment 64 was meant to do, which is not buying on the black market," said Denis Berckefeldt, spokesman for the auditor.
The city expects it will have to spend about $9.4 million on education, enforcement and regulation of the pot industry, for which the tax would compensate.
The council will determine a starting tax rate and ceiling at its meeting Monday. The city will then pose those rates to voters in November. If approved, the council can raise the recreational marijuana tax rate to the determined cap.
Councilwoman Jeanne Faatz said she is concerned with providing Denver with the necessary resources to regulate this new industry.
"I see no reason to start worrying about competing with the black market," she said. "I want to set (the tax) where I feel makes sense, and I don't believe that 5 percent is excessive."
The letter came less than a week after an audit found grievous problems with how the city licenses, tracks and manages Denver's medical marijuana industry.
"It is imperative that adequate resources and staffing be devoted to the licensing and regulation of all marijuana businesses," Gallagher said in the letter. "Yet (the tax rate) must not be so high as to foil the intent of Amendment 64."
Gallagher, who was not available for comment Tuesday, acknowledged in his letter that no one knows what the tax level should be, because the costs of the industry to the city are so uncertain.
"We're in uncharted territory," Berckefeldt said. "You do have to start some place. We can't just go into this without insuring some sort of revenue is coming in."
Which is why the 3.5 percent proposal is meant to be a starting point in the search for a taxation sweet spot, the auditor argued.
Brown said members' opinions vary on what the tax rate should start at and where it should be capped.
Some don't think the city should tax marijuana at all. Others, such as Faatz, said it should go as high as 15 percent.
"I didn't vote for this damn thing, but it is what it is and we got to deal with it," said Brown, who favors the 5 percent rate. "We want efficient and fair regulation, and I think fair taxes as well."
A study will soon be completed that will amend the $3,000 medical marijuana license fee and make it more realistic for recreational marijuana, Brown said.
Political consultant Katy Atkinson estimated the tax will pass regardless of the rate, since many voters don't use marijuana and often support taxes on someone else.
"(The city) can probably get from the voters whatever they ask for," she said.
Brown said voters know that this industry is in its infancy and involves guess work.
"I think this vote on tax is huge because this will be, whether we like it or not, the council's legacy. We're going to be judged," he said. "I think the whole world is watching this issue. We got to get it right."
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