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Medical Cannabis and Sales Tax, Explained
byJanuary 28, 2021
Sales tax on medical cannabis can be a controversial subject.
According to the Mayo Clinic, medical cannabis (AKA medical marijuana) can provide positive benefit for people suffering from medical conditions including glaucoma, cancer, epilepsy, nausea and chronic pain, among many others.
Because medical cannabis is used to medicate ailments, you might think that it – like other prescription drugs in most states in the United States – would not be taxable. However, medical cannabis gets treated a little differently.
This is mainly because cannabis is still federally considered an illegal drug in the US. So while many U.S. states have legalized cannabis for medical use, it is still almost always illegal to prescribe at the federal level. Long story short, the FDA has only approved certain cannabis derivatives as prescription treatment.
Of course, sales tax is set at the state, and not the federal, level. Some state lawmakers see it as a taxable product like any other, while other state lawmakers worry that taxing a product for medical use puts an undue tax burden on people who are already sick. Further, over the past few years, many lawmakers, such as Louisiana’s Larry Bagley, have reversed their opinion on the taxability of medical cannabis due to meeting constituents whose medical conditions benefit from the drug.
For the purposes of sales tax, most (but not all) marijuana used for medical purposes is considered non-prescription. And each state treats non-prescription drugs, including medical cannabis differently.
How States Tax Medical Cannabis
While medical cannabis is taxable in most states, it is generally taxed differently than recreational cannabis.
While recreational cannabis is often subject to state and local sales tax and/or an additional sales tax or excise tax, medical cannabis is often only subject to state and local sales tax like any other taxable item sold at retail.
Some states, however, do treat medical cannabis like other medications, and either do not tax it, or tax it at a lower rate than other items sold at retail.
This blog post will explore how each state wants medical cannabis sellers to tax their products.
Note: Interested in the difference between medical cannabis and other forms of legalized cannabis? Check out our Recreational Cannabis and Sales Tax, Explained blog post.
|State||Sales Tax or Other Tax?||Notes|
|Alaska||Subject to local sales tax rates, where applicable||AK does not have a state sales tax; retailers should check with your city or borough to determine if you are required to charge local sales tax|
|Arizona||Adult use marijuana dispensaries must remit transaction privilege tax (TPT) and marijuana excise tax (MET). The state MET rate is 16%.|
|Arkansas||Subject to state and local sales tax rates|
|Colorado||Subject to state and local sales tax rates|
|Connecticut||Subject to state and local sales tax rates|
|Delaware||Non-taxable||Delaware does not have a sales tax|
|District of Columbia||Subject to the District’s single sales tax rate|
|Florida||Tax exempt||Medical cannabis delivery devices are also tax exempt in Florida|
|Hawaii||Subject to General Excise Tax (GET)||GET is Hawaii’s version of sales tax|
|Illinois||Like other medication, subject to 1% Retailers Use Tax (ROT) plus some local taxes|
|Maine||Subject to Maine’s state sales tax rate||Maine does not have local sales tax rates|
|Maryland||Tax exempt, like other qualify drugs in the state|
|Massachusetts||Tax exempt||Only tax exempt when sold to a “qualified purchaser” who presents their Medical Use of Marijuana Program ID Card|
|Michigan||Subject to Michigan’s state sales tax rate||Michigan does not have local sales tax rates|
|Missouri||4% retail sales tax for medical cannabis sold at medical cannabis dispensaries|
|Montana||Taxed at 4% special sales tax rate|
|Nevada||Subject to state and local sales tax rates|
|New Hampshire||Non-taxable||New Hampshire has no sales tax|
|New Jersey||4% sales tax||Starting July 1, 2021 this tax will fall to 2%. And starting July 1, 2022 this tax will be 0%|
|New Mexico||Subject to state and local Gross Receipts Tax (GRT)|
|New York||Tax exempt|
|North Dakota||Subject to state and local sales tax rates|
|Ohio||Subject to state and local sales tax rates|
|Oklahoma||Subject to state and local sales tax rates plus an additional 7% gross receipts tax|
|Oregon||Non-taxable||Oregon does not have a statewide sales tax|
|Rhode Island||Subject to Rhode Island’s state sales tax rate||Rhode Island does not have local sales tax rates|
|South Dakota||N/A||South Dakota only recently legalized cannabis sales and has no released tax guidance as of this writing|
|Utah||Tax exempt||Medical cannabis devices are taxable at the combined state and local rate|
|Washington||Subject to combined state and local sales tax rates plus a 37% excise tax|
|West Virginia||Tax exempt|
In Alaska, all cannabis – whether used for medical or recreational purposes – is taxed the same way.
The State of Alaska marijuana tax is currently set at $50 per ounce on marijuana bud/flower, $25 per ounce for immature or abnormal bud/flower and $15 per ounce on leaf/trim.
Alaska levies a tax on cannabis cultivators, but does not have a statewide sales tax and so does not require Alaska cannabis sellers to collect a statewide sales tax at retail (i.e. when selling to the public).
However, some local areas, such as Anchorage, do have a sales tax. In this case, cannabis sellers are required to collect the local sales tax when selling medical cannabis.
In Arizona, medical cannabis is subject to transaction privilege tax (TPT), which is Arizona’s version of sales tax.
Medical cannabis is subject to the same state and local TPT as other purchases. However, unlike recreational cannabis, it is not subject to an additional excise tax.
Arizona lawmakers, however, have tried in the past to add a 5% excise tax on medical marijuana sales, and we will continue to watch for updates and update this blog post should Arizona sales tax on medical cannabis change.
In Arkansas, medical cannabis is taxed at the same state and local sales tax rate as other purchases.
In addition to state and local sales tax, a 4% medical cannabis special privilege tax is imposed on gross receipts from sales of usable cannabis by a cultivation facility, dispensary, or other cannabis business.
The 4% special privilege tax is scheduled to expire on July 1, 2021.
While recreational cannabis is taxable in California, the state allows a sales tax exemption at retail for medical cannabis, medical cannabis concentrate, edible medical cannabis products, and topical cannabis, as defined.
In Colorado, medical cannabis is subject to the same state and local sales tax as other items sold at retail.
In Colorado, medical cannabis is subject to the same state and local sales tax as other items sold at retail.
Medical cannabis is legal in Delaware, but the state does not have a sales tax. Therefore, no sales tax is imposed at retail on medical cannabis.
The sale of medical cannabis is subject to the Washington D.C. sales tax rate. This is made slightly easier by the fact that the District only has a single sales tax rate which is, at the time of this writing, 6%.
Medical cannabis and cannabis delivery devices are exempt from Florida sales and use tax.
Hawaii has a General Excise Tax (GET) rather than a sales tax. While most prescription medication is non-taxable in Hawaii, this unfortunately does not apply to medical marijuana. Medical marijuana is subject to the same GET as other retail sales in the state.
In Illinois, medical cannabis is taxed at the same rate as other qualifying drugs. This means that in most areas of Illinois it is only subject to a 1% Retailers Use Tax (ROT – Illinois’ version of sales tax).
However, some areas have a Regional Transportation Authority and Metro-East Transit District local tax, and medical cannabis may not be exempt from those taxes. The state’s department of revenue provides a handy Illinois Sales Tax Rate Lookup so you can see the medical cannabis sales tax rate in your district.
Medical cannabis is subject to Maine’s regular state sales tax rate. Maine does not have local sales tax rates.
Medical cannabis, like other prescription and non-prescription drugs, is not subject to sales tax in Maryland.
Medical cannabis sold to a qualified purchaser is not subject to sales tax in Massachusetts.
Qualified purchasers must present their Medical Use of Marijuana Program ID Card.
Medical cannabis is subject to Michigan’s regular state sales tax rate. Michigan does not have local sales tax rates.
Missouri imposes a 4% retail sales tax on cannabis for medical use sold at medical cannabis dispensaries.
Though Montana does not have a state sales tax, medical cannabis is taxed at a 4% sales tax rate.
Medical cannabis is subject to state and local sales tax in Nevada.
Nevada does not require retailers selling to end users to charge the regular 10% excise tax that is charged on recreational cannabis in the state.
New Hampshire has no state sales tax, therefore medical cannabis is not taxable in New Hampshire.
New Jersey currently levies a 4% sales tax on the sale of medical cannabis by a dispensary or clinical registrant. Starting July 1, 2021 this tax will fall to 2%. And starting July 1, 2022 this tax will be 0%, meaning medical cannabis will no longer be taxable in New Jersey in mid-2022.
Medical cannabis is subject to New Mexico’s state and local Gross Receipts Tax (GRT), which is New Mexico’s version of sales tax.
Medical cannabis is tax exempt in New York when sold to customers. (Sellers/retailers, however, must pay an excise tax, which is currently 7% of gross receipts.)
Medical cannabis in North Dakota is subject to state and local sales tax rates.
Medical cannabis is subject to state and local Ohio sales tax.
Medical cannabis is subject to state and local Oklahoma sales tax plus an additional 7% gross receipts tax.
Medical cannabis is not taxable in Oregon. Oregon does not have a statewide sales tax.
Medical cannabis is not subject to Pennsylvania sales tax at retail. Instead, a gross receipts tax is imposed on growers and/or processors.
Medical cannabis is subject to Rhode Island’s state sales tax rate. Rhode Island does not have local sales tax rates.
South Dakota only legalized cannabis sales on Nov 3, 2020. The state has not yet finalized sales tax on medical cannabis.
Medical cannabis is tax exempt in Utah. However, medical cannabis devices are subject to state and local tax.
Just like other drugs, medical cannabis is exempt from sales tax in Vermont.
All cannabis in Washington is taxed at the state and local sales and use tax rate plus a 37% cannabis excise tax.
However, certain exemptions are available to retailers with medical marijuana endorsements.
Medical cannabis is not subject to West Virginia sales tax. However, an excise tax will be imposed on growers and/or processors when selling to a dispensary.
We hope this answers your questions about sales tax on medical cannabis. Have questions or comments? Let us know below.
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