A jar of marijuana is on display at the Rocky Road dispensary in the Aurora Hemp Marketplace on Nov. 3, 2016. (RJ Sangosti, Denver Post file)

Pot tax haul of $1.36 million now in limbo — how will Colorado county give it back?

The disputed tax revenue includes more than $500,000 earmarked for college scholarships

Adams County has collected more than $1.36 million through a 3 percent tax on recreational marijuana sales that the Colorado Court of Appeals found to be invalid.

The voter-approved tax generated $293,875 in the last six months of 2015 and $1,070,557 so far this year that may have to be refunded.

The Colorado Court of Appeals ruled Thursday that the tax is invalid, reversing a lower court decision and siding with the cities of Northglenn, Aurora and Commerce City, which sued over the tariff.

That leaves all of the money collected by the tax in limbo — including more than $500,000 earmarked for college scholarships for underprivileged students — while the county decides what to do next.

Adams County included $1.2 million in projected revenues from the tax in its 2017 budget, anticipating new recreational marijuana shops opening in Thornton.

The cities had initially sued in district court, claiming Adams County didn’t have the authority under state law to tax a single product. Coupled with their own taxes on pot, the cities argued that an additional county levy put retail cannabis retailers in their jurisdictions at a competitive disadvantage.

A judge ruled in Adams County’s favor in fall of 2015, and the cities appealed. The county began collecting the tax in July 2015.

A county spokesman said the scholarships that have been awarded will not be affected. Officials also said they don’t know how quickly the county will stop collecting the tax.

It also was not clear how the $1.3 million in taxes would be returned to taxpayers. The ruling did not specify how the funds should be handled.

The Court of Appeals said in its ruling that Adams County’s special tax violates the constitutional structure created by Amendment 64, which legalized the sale, possession and consumption of marijuana for recreational uses. It also rejected the county’s claim that since the tax was passed by an election, the court did not have the authority to overturn the results.

“We reject this argument because whether the county held a valid election is irrelevant to whether it had the legislative power to impose a special sales tax,” the order said. “Unless the General Assembly or Colorado Constitution authorized the county to impose such a tax, the county simply does not have the power to enact such a tax, irrespective of a valid election.”

Adams County voters approved the 3 percent special sales tax on recreational pot sales in November 2014, when there was still a moratorium on cannabis retailing in unincorporated areas. The moratorium expired later that year.

Aurora and Northglenn each collect a 2 percent sales tax on recreational marijuana. Commerce City — which only has one pot store — imposes a 7 percent tax on the sale of all cannabis products.

A decision on how to move respond to the ruling won’t be made by Adams County until at least Jan. 3, when the county commission is next set to meet. The county could file an appeal with the Colorado Supreme Court, which might stay Thursday’s ruling.

This story was first published on DenverPost.com