State Cannabis Taxation Rules

February 28, 2020

Lately, we’ve talked quite a bit about legalized marijuana taxes. We’ve talked about Section 280E, for instance, and the tax issues raised by this important tax code section. We’ve also talked about the debate currently taking place in New York regarding the legalization of recreational cannabis. Today, we will continue to discuss this critical topic by looking at state levies on the cannabis industry in a few more states in the United States.

We’ve already covered several states, in a past article. In this post, we’ll look at how three states tax retail sales of recreational weed: Massachusetts, Alaska and California. This discussion is very relevant because we know that the policies in one state can quickly be adopted by other states. We’ve seen this tendency in many other areas of law and policy. For instance, we’ve seen how sin taxes, such as taxes on beer, can be heavily influenced by the policies of neighboring states.

State Cannabis Taxation Rules to Guide New York

If New York State ends up legalizing recreational marijuana, in addition to medical marijuana, we may see tax policy in the Empire State which is quite similar to the policy of one of the states mentioned below. Governor Andrew Cuomo has already put forth a tentative taxation program for legalized cannabis in New York. However, that proposal is still incomplete. We may see adjustments to that proposal based on the rates in the ten states and the District of Columbia, where it’s already legal.

Taxation in Massachusetts

Most people won’t be too surprised to hear that the State of Massachusetts is one of the states to have already legalized recreational cannabis. Home to Harvard and several other leading national universities, Massachusetts is also very progressive. At the present time, Massachusetts has a three layer state and local taxation program for recreational cannabis. The first layer is a statewide sales tax which currently stands at 6.25%. The next layer is a state excise tax which currently sits at 10.75%. Finally, local cities and towns may also impose their own additional tax on cannabis products at their discretion. This additional local tax is capped at 3% of sales of cannabis, accordingly, recreational weed consumers face a maximum cannabis tax of 20%, in total. Interested persons can learn more about these rates on Massachusetts’ website.

Taxation in Alaska

Alaska is another state which shouldn’t cause too much surprise. The State of Alaska has a very thoroughly developed system of taxes on the sale of recreational cannabis products. Cannabis cultivators and other interested persons can check out Alaska’s up-to-date information on the subject by visiting the state’s website. Currently, cannabis is subject to only a single layer of tax in Alaska. This layer is just a single excise tax, however. Even so, the excise tax rate varies depending on the type of cannabis product. These rates changed in January, 2019.

The current excise tax rates are as follows: mature flower is taxed at $50 an ounce; trim is taxed at $15 an ounce; immature or abnormal flower is taxed at $25 an ounce. Lastly, clones are taxed at a flat rate of $1 per clone, regardless of weight. Alaska traditionally hasn’t imposed a state sales tax, and this explains why we’re only seeing one layer of tax on cannabis there.

Taxation in California

At the present time, California has two layers of taxation, and both apply to cannabis, specifically. The first layer is a cultivation tax directly on marijuana business cultivators. Distributors are responsible for both collecting and remitting this tax. The cultivator tax rates vary depending on the cannabis type. For flowers, for instance, the rate is $9.65 per dry weight ounce; for leaves, it’s $2.87 per dry weight ounce; and for fresh cannabis plant, it’s $1.35 per dry weight ounce. Then, after the cultivation tax, the cannabis is subject to an additional 15% excise tax. This excise tax is based on the “average market rate” of the cannabis product. Distributors collect this additional excise tax from cannabis retailers.

Contact Us About State Cannabis Taxation

We’ll continue to keep up-to-date with what’s going on in the world of cannabis taxation and the legalization of cannabis in New York. If Gov. Cuomo and the State legislature legalize cannabis for recreational purposes, New York will see a big increase in its tax revenue. And that extra revenue is much needed. At Mackay, Caswell & Callahan, P.C., you can count on us for useful material on a wide range of important topics. If you’d like to learn more about Section 280E, federal debt resolution, or other related tax matters, contact us today. Reach out and one of our top New York City tax attorneys will respond right away.

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