Canna-Biz Taxation: A Mixed Bag For Growers, Consumers And Taxing Authorities

The fledgling U.S. cannabis market is a bit of a free-for-all. Well, maybe free isn’t the right word, given the cultivation taxes, excise taxes, income taxes, payroll taxes, and sales taxes that growers, retailers and consumers are contending with.

In fact, that’s part of the problem. While legislation surrounding cannabis is moving quickly in the U.S., the entire industry is still in its infancy. Everyone from dispensary owners to government employees to CPAs is operating without nationwide standards or proven best practices that apply to every different type of cannabis tax scenario. And that becomes dicey when one considers the contradictory interpretations of federal and state tax laws.

All told, ten states and the District of Columbia have legalized recreational cannabis, with more likely to jump on board this year. But state-by-state approaches to taxation vary wildly. For example, Alaska taxes growers $50 per ounce sold to dispensaries and retailers, but does not levy a sales tax. Several states, however, lean heavily on consumer sales taxes, with rates ranging from 10.75% in Massachusetts to 37% in Washington State.

Two states (Nevada and Colorado) tax both the sale of cannabis from grower to retailer and from retailer to consumer. In California, consumers pay a 15% sales tax and growers are taxed different rates for flowers and leaves. And three states (Maine, Vermont and Michigan) have legalized recreational cannabis, but not yet established regulated markets or tax policies.

This is all before we consider that, in many cases, retail sales are subject to standard sales taxes in addition to cannabis levies, and cities and counties have free reign to tack on additional cannabis taxes.