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New York’s Cannabis Tax Law

Last year, New York’s plan to legalize recreational cannabis failed when the measure was unable to gather sufficient support. The new proposal had those who predictably opposed it, such as law enforcement, political conservatives and teachers. But the measure also had some unexpected opponents, such as progressives who felt that the measure failed to do enough for minority New York residents. Historically, minorities are disproportionately negatively affected by the criminalization of marijuana and the resultant black market. Certain progressives desired to have more affirmative support for minorities built into the new law. Now, New York State is once again close to becoming the next state to legalize marijuana. This is big news for the entire State, so today we’ll look at New York’s cannabis tax law, which is just waiting in the wings.

In this post, we’ll first discuss the current state of the debate to legalize cannabis in New York State. We’ll then discuss New York’s cannabis tax law on recreational cannabis. As it turns out, Gov. Andrew Cuomo’s marijuana tax plan is influenced by the tax treatment of cannabis in other states. This isn’t surprising, as states often imitate other states when it comes to taxation.

New York May Be Next to Legalize Recreational Cannabis

The effort to legalize marijuana use for recreational purposes is currently under debate by the New York legislature. The State already has already legalized medical marijuana use. If the State does legalize weed, it would make New York the twelfth state to pass such a law. Presently, ten states and the District of Columbia have legalized cannabis for recreational use as the war on drugs continues to shift. Other states are also considering measures to legalize cannabis in 2020. So, NY may become just one of many states to join the trend of legalizing recreational cannabis.

Licenses to Grow & Sell

The updated proposal in front of the State legislature incorporates some of the feedback made to the initial proposal that failed to pass last year. What’s more, if the measure is successful, Gov. Andrew Cuomo has stated that he will establish a special office to issue and manage licenses to grow and sell marijuana. This is similar to what occurs in other states. In Washington State, for instance, it’s illegal to sell homegrown marijuana; a license is required in order to become a legal seller. Similar requirements are on the books in other states.

Cannabis Taxes in Other States

Cannabis taxes differ in each state. In most cases, cannabis is subject to multiple layers of taxation. For instance, in Nevada, cannabis is subject to both state sales tax and an excise tax. Washington State, though, only has an excise tax on cannabis, but that rate is very high (37%).

New York’s Cannabis Tax Law Proposal

Governor Cuomo has already proposed a tentative taxation schedule for legalized cannabis in the event that the latest proposal passes. His schedule imposes three separate layers of tax on cannabis: a “cultivation tax,” a state sales tax, and a local sales tax.

A Cultivation Tax

The cultivation tax is essentially just a special name for what is actually an excise tax on cannabis. The rates for these taxes would be as follows: cultivation tax is $1 per dry weight gram of flower and $1 per dry weight gram of cannabis trim; the state sales tax would be 20%, and the local tax would be 2%.

State & Local Sales Tax

The sales tax is imposed on the transaction between the wholesaler and the retail dispensary. New York State expects to take in as much as $300 million in tax revenue in the event the new measure passes. This isn’t an overly ambitious estimate, as other states (such as Washington State) have seen similar revenues.

New York Cannabis Industry & Sec. 280E

If New York does end up legalizing recreational marijuana, another issue that cannabis businesses will need to be aware of is the impact of Internal Revenue Code Section 280E. The intent of Section 280E was to prevent those generating income from “controlled substances” from taking deductions for ordinary business expenses. This section predates legalized cannabis. Cannabis is still a controlled substance under federal law; accordingly, this means that state legal cannabis businesses may not be able to deduct most business expenses for purposes of federal income taxation. New York cannabis businesses may, therefore, face high federal income tax rates.

Contact Us for Additional Info

The debate over legal cannabis is an important issue for the State of New York. If this measure passes, New Yorkers will have another set of taxes to worry about. At Mackay, Caswell & Callahan, P.C., we’re here to assist New Yorkers in the event the new cannabis legalization plan goes forward. We can help businesses deal with the new taxes and help resolve any debts which arise. We regularly assist clients with federal tax debt resolution, state tax debt resolution, sales taxes and other related matters. Contact one of our top New York City tax attorneys today for additional information.

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