Navigating the Maze of Taxation
- Sales Tax: Most states with legal cannabis markets impose a sales tax on the retail sale of cannabis products. This tax is typically paid by the consumer at the point of purchase and collected by the retailer. Sales tax rates and regulations vary widely from state to state.
- Gross Receipts Tax: Some states impose a gross receipts tax, which is a tax on a business’s total revenue or gross income. The rate and application of gross receipts tax also vary by state.
- State Marijuana Tax: Specific to the cannabis industry, some states levy a marijuana excise tax. This tax is typically assessed on the sale or transfer of cannabis products from cultivation or production facilities to dispensaries.
- Municipal Taxes: In addition to state-level taxes, many municipalities within legal cannabis states impose their own taxes on cannabis businesses. These taxes can vary significantly based on local regulations.
Differentiation Between Adult-Use Recreational and Medical Sales:
- Medical Sales Taxation: Some states provide tax exemptions or reduced tax rates for medical cannabis sales. These tax incentives are designed to ensure that patients have affordable access to medical cannabis treatments.
- Recreational Sales Taxation: Adult-use recreational sales are typically subject to higher tax rates compared to medical sales. The revenue generated from recreational sales taxes often goes towards various state programs and initiatives.
Federal Internal Revenue Code 280E Strategies:
- Adding Back Deductions: Certain states allow cannabis businesses to add back federally disallowed deductions when calculating their state taxable income. This can result in a lower state tax liability compared to federal taxes.
- Comparative Taxable Income: Cannabis businesses can often achieve a lower taxable income at the state level by taking advantage of state-specific deductions and credits not available at the federal level. These deductions can offset some of the tax impact of Section 280E.
Sandy Suchoff, CPA is the Founder and principal of Lefstein-Suchoff, CPA & Associates, LLC D/B/A The Canna CPAs. Suchoff has been featured and interviewed on MSNBC, FOX News, and Tune In Business Talk Radio as a tax advisor, as well as ONR Oklahoma PBS TV, Chasing News on FOX & WOR, KRQE 13, Cannabis Radio, Purple Haze Radio, and Cannabis Tech & Today as an advisor on cannabis tax and accounting.