Marijuana Retail Tax Compliance

Posted on October 6, 2021August 5, 2022

In today’s constantly evolving cannabis industry, cannabusinesses face numerous challenges that can impact their short- and long-term success. These include various state licensing regulations, the high-stakes tax burden created by IRC Section 280E, and the constant need to maintain a competitive edge. One of the most onerous challenges for operators is the need to stay on top of the unique and evolving regulations presented by each state and local tax jurisdiction.

As of this post, the recreational use of cannabis is legalized in 18 states, the District of Columbia, the Northern Mariana Islands, and Guam. Another 13 states and the U.S. Virgin Islands have decriminalized its use.

Here, in Massachusetts, operators must comply with the state’s Marijuana Retail Tax (MRT) regulations. The MRT is comprised of two separate taxes—the marijuana excise tax and the sales/use tax—both of which are collected from the customer. The marijuana excise tax is a 10.75% tax imposed on the sale of any recreational marijuana product (medical marijuana products are exempt from this tax). In addition to the Marijuana Excise Tax, the state’s 6.25% state sales tax and local sales tax of as much as 3% also apply to all recreational cannabis and non-cannabis products.

The combined MRT gets calculated, filed, and remitted through Mass Tax Connect (MTC) which is the state’s online tax portal. The filing needs to be completed monthly on or before the 30^th day of the month following the reporting month (e.g., May MRT is due by June 30^th). Additionally, if your sales exceed a certain threshold you are required to make advance payments each month.

New York’s marijuana plan calls for a 13% tax on retail sales—with 9% going to the state and 4% to local governments where the sales take place. New York’s marijuana tax might not be the nation’s highest, but it may be the most complex. Washington state has the highest such tax, called an excise tax, at 37%. States like California and Oregon also have high retail taxes.

Businesses that file and/or pay late, or do not file at all are subject to stringent fines, penalties, and interest—and could potentially jeopardize their license.

We know expanding your cannabis nexus footprint into other states takes a team who understands the complexities created by expansive tax regulations. Clients are encouraged to reach out to their AAFCPAs Partner to discuss the implications of state tax compliance, especially when considering expanding into additional jurisdictions.

Keeping up with monthly filing requirements, especially for multi-state operators, can be a time consuming and daunting process that consumes valuable resources and diverts focus from growth initiatives. AAFCPAs combines expertise and technology to focus on multistate indirect tax compliance so you can focus on growth. We are alleviating the onerous state tax compliance burden for many clients.

AAFCPAs is a full-service CPA and consulting firm that has been servicing the cannabis industry since 2012 when Massachusetts first passed medical marijuana legislation. We continue to monitor ever-changing developments in federal legalization, banking reform, and state and local taxation. If you have questions, please contact: Kelly Zack, CPA, MST, Director, State & Local Tax at kzack@nullaafcpa.com, 774.512.4001; David J. Gravel, CPA, Tax Manager, 774.512.4008, dgravel@nullaafcpa.com; or your AAFCPAs Partner.

About the Authors

David J. Gravel, CPA

Dave is a leader in AAFCPAs’ cannabis practice. He provides tax and consulting solutions to multi-state operators, recreational and medical retailers, cultivators, product manufacturers, and investors. He has extensive experience advising cannabis operators and license applicants on optimal entity structure, maximizing deductions in accordance with IRC Section 280E, and multi-year tax planning to ensure preferred tax results, with a focus on preserving cash and maximizing lender/investor value. He also provides guidance on avoiding pitfalls associated with 280E and state and local tax compliance. He helps clients understand the critical role of cost accounting in the cannabis space, and what is scrutinized by those evaluating your statements. He provides insight on documentation needed and what to expect to support an IRS or other external audit.

Kelly Zack, MST

Kelly is a senior leader in AAFCPAs’ Commercial Tax practice. She advises individuals, partnerships, corporations, and trusts operating in multiple states and municipalities on opportunities to save tax dollars through advanced tax planning and risk mitigation. She enthusiastically assists AAFCPAs clients in identifying all location-specific tax incentives and credits which could have a major impact on business entities and their owners.