The cannabis industry has grown over the past several years as more states have legalized recreational use. This means that new companies are popping up to fill the demand, translating to higher revenue from the additional state and local business taxes.
What exactly do state tax requirements look like for the cannabis industry? This guide will provide a quick overview of the states where recreational marijuana is currently legal.
Alaska’s State Tax Requirements for Marijuana
State tax rates for retail cannabis actually increased in Alaska earlier this year. As of January 1, 2019:
- Mature buds or flowers are taxed at $50 per ounce
- Trim is taxed at $15 per ounce
- A bud or flower that is considered immature or abnormal (because it didn’t fully develop, it contains seeds or it failed testing) is taxed at $25 per ounce
- Clones are taxed at a flat rate of $1 per clone and not included on the estimated weight
California’s State Tax Requirements for Marijuana
California currently charges a 15 percent excise tax on retail purchases of cannabis and cannabis products. In addition, all harvested cannabis that enters the commercial market is also taxed at a rate of $1.29-$9.25 per ounce, depending on if the harvest is flowers, leaves or a fresh plant. The state also imposes sales tax on the retail sale of cannabis and cannabis products.
You can read more details about California state tax requirements for the industry in this blog post.
Colorado’s State Tax Requirements for Marijuana
Although recreational marijuana is exempt from the state’s 2.9 percent sales tax, Colorado charges a 15 percent state tax on all sales of retail cannabis and marijuana-infused products.
Illinois’ State Tax Requirements for Marijuana
Illinois is the most recent state to legalize recreational marijuana use; the state’s General Assembly passed the law the week of May 26 and the governor plans to sign it into law.
Should Illinois’ governor sign the bill, consumers will be able to purchase cannabis from licensed retail sellers beginning January 1, 2020. The drug will be taxed in the following ways:
- Cannabis flower or products with a concentration of THC less than 35 percent will be subject to a 10 percent sales tax
- Cannabis-infused products with a concentration of THC less than 35 percent are subject to a 20 percent state tax
- Cannabis products with a concentration of THC more than 35 percent are subject to a 25 percent tax
- Municipalities and counties will also be able to levy additional local sales tax
- The sale of marijuana from cultivators to dispensaries will be subject to a 7 percent gross receipts tax
Maine’s State Tax Requirements for Marijuana
Maine dictates recreational cannabis is subject to a 10 percent sales tax. This is the only state tax charged on the sale of retail marijuana or retail marijuana products and is collected at the final sale at a retail location or social club.
Massachusetts’ State Tax Requirements for Marijuana
As of July 1, 2018, recreational marijuana in Massachusetts is subject to three sales taxes:
- A state sales tax of 6.25 percent
- A state excise tax of 10.75 percent
- A local option for cities or towns of up to 3 percent
Michigan’s State Tax Requirements for Marijuana
Michigan passed a law legalizing recreational marijuana on November 6, 2018 and the state filed emergency rules that are in effect until January 3, 2020:
- A 3 percent state tax on gross retail receipts
- A 6 percent sales tax on the gross proceeds of all those engaged in the business of making retail cannabis sales
- A 10 percent excise tax imposed on retailers
Nevada’s State Tax Requirements for Marijuana
In Nevada, recreational marijuana is taxed a few times. Cannabis is subject to all of the following taxes:
- A 15 percent excise tax on the first wholesale sale
- Standard state sales tax
- A 10 percent retail excise tax on the sale price when the product is sold to an adult who is not a medical patient cardholder
Oregon’s State Tax Requirements for Marijuana
Oregon charges a 17 percent state tax on recreational marijuana sales. Municipalities can also enact a local tax of up to 3 percent.
Vermont’s State Tax Requirements for Marijuana
Vermont took a different approach to recreational marijuana: it passed a law that allows adults to grow and possess it, but not to sell it. Those over 21 can have up to one ounce of cannabis, and grow two mature and four immature plants per household.
At this point retail marijuana sales are not legal, but Vermont’s Senate did pass a bill that would impose a state tax of 16 percent and the option for municipalities to impose an additional 2 percent local tax on recreational cannabis sales. It’s currently in committee in the state House; it will be interesting to see if it makes it to the floor and passes.
Washington’s State Tax Requirements for Marijuana
One of the first states to legalize recreational use, Washington charges a 37 percent excise tax collected by retailers, plus local sales tax. Production is also charged B&O tax, but most of the cannabis taxes in this state are paid at the retail level.
Do you have any questions about how these various state tax requirements may affect your business? Please contact us to learn more about these or any other multi-state tax issues that may affect your company. We’d love to help you out!
