Special Resolution Seeks Cannabis Tax Sharing Agreement

Among the resolutions admitted for debate at this year’s Convention is a Special Resolution (SR1) that seeks to advance a short- and long-term cannabis excise tax revenue sharing strategy. This strategy is intended to guide the negotiation of a provincial-local government cannabis excise tax revenue sharing agreement.

UBCM has analyzed cannabis taxation schemes in number of jurisdictions where non-medical cannabis is currently legal or will soon become legal, including several U.S. states and Canadian provinces. Based on the findings of this research, and combined with UBCM’s approach to cannabis excise tax revenue sharing, UBCM is proposing two strategies to guide the negotiation of a cannabis excise tax revenue sharing agreement with the Province.

The short-term strategy proposed as part of SR1 intends to adopt a revenue sharing framework that would entail the provincial government providing local governments with 40% ($50 million) of the projected provincial cannabis excise tax revenue ($125 million) over the first two years of legalization. Any revenue in excess of the $125 million provincial projection would be shared 50-50 between the Province and BC local governments. Excise tax revenue would be distributed to BC local governments on a per capita basis, with all municipalities and regional districts receiving a minimum of $10,000 regardless of population.

The proposed long-term strategy seeks to develop an agreement that explores the following options:

  1. Continue with the framework used in the first two years, particularly if projected costs and revenues are within a reasonable variance from the original projection; or,
  2. Determine the potential to increase the provincial sales tax on cannabis from 7% to not more than 10% with a commitment of this portion to local governments in place of excise sales tax revenue sharing.

SR1 and cannabis excise tax revenue sharing will form part of the discussion during the Cannabis Legalization: A Joint Venture session on Tuesday, September 11.

Background

In advance of the October 17, 2018, legalization of non-medical cannabis, the Province of British Columbia has signed on to the Federal-Provincial-Territorial Agreement on Cannabis Taxation. The two-year agreement will see the federal government retain 25% of excise tax revenue (up to a maximum of $100 million per year), with the remaining 75% (or more) going to provinces and territories. The federal government increased the share of cannabis excise tax revenue to be transferred to provinces and territories from 50% to 75% in recognition of legalization’s impacts on local governments. 


The federal government has refrained from directly providing local governments a share of cannabis excise tax revenue, leaving that responsibility to provinces/territories. As of September 1, only Ontario and Quebec have completed cannabis taxation revenue sharing agreements with local governments.

In Ontario, local governments have agreed to $40 million in cannabis excise tax revenue over 2 years, representing 40% of the projected provincial cannabis excise tax revenue ($100 million). The Province of Quebec will be providing $20 million of its projected $73 million in cannabis excise tax revenue to local governments over 2 years. The Province will also commit $42 million towards public safety.

Based on the Federal-Provincial-Territorial Agreement on Cannabis Taxation, as well as their own projections, the Province of British Columbia expects to receive $125 million in cannabis excise tax revenue over the first 2 years of legalization. The Liquor Distribution Branch has announced that a 15% mark-up will be applied to the price of cannabis, in addition to the federal excise tax. Non-medical cannabis will also be subject to the provincial sales tax and federal goods and services tax.

Through endorsed resolutions 2017-SR1, 2016-A3, and 2016-A2, UBCM’s members have placed a high priority on cost recovery and equitable sharing of cannabis taxation revenue.

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