May 15, 2018
The Massachusetts Department of Revenue held a public hearing on May 3, 2018 to gather public comments on proposed marijuana tax regulations, 830 CMR 64N.1.1: Marijuana Retail Taxes. You can view the proposed regulations at https://www.mass.gov/regulations/830-CMR-64n11-marijuana-retail-taxes. The regulations are scheduled to go into effect on June 1, 2018.
Here is a summary of the proposed regulations:
The Taxes. The marijuana taxes will apply to retail sales by licensed marijuana retail establishments of so-called adult use marijuana and related marijuana products (e.g., oils and edibles). The regulations impose three taxes on marijuana retail sales: state and local excise taxes, and a state sales tax. The tax percentages are set by statute and will not be modified during the regulatory adoption process. The tax percentages are:
- State marijuana excise tax of 10.75%.
- Local marijuana excise tax of up to 3.00% (in cities and towns that opt to impose a local marijuana excise tax).
- State sales tax of 6.25%.
1. State and Local Excise Taxes. In general, all sales of marijuana and marijuana products by a marijuana retailer are subject to the state and local marijuana excise taxes. However, certain marijuana transactions by a marijuana retailer will be exempt from the state and local excise taxes:
- Retail sales of medical marijuana.
- Sales by a marijuana retailer to another marijuana establishment.
- “Marijuana establishment” includes any kind of licensed marijuana-related business, including, for purposes of the marijuana tax regulations, licensed medical marijuana treatment centers (a/k/a registered marijuana dispensaries).
2. State Sales Tax. All sales of marijuana by a marijuana establishment, including marijuana retailers, are subject to the sales tax except:
- Sales for Resale. Marijuana sold to another marijuana establishment for resale is exempt. The selling marijuana establishment bears the burden of proving the sale was for resale unless the marijuana establishment purchaser provides a Massachusetts Department of Revenue Form ST-4 to the selling establishment.
- Medical Marijuana. Sales of medical marijuana by a licensed medical marijuana treatment center to a patient or a patient’s personal caregiver are exempt.
- Certain Exempt Uses. Sales of marijuana may be exempt if a marijuana establishment sells marijuana to another marijuana establishment as materials that have a useful life of less than one year and which (i) become an ingredient or component part of tangible personal property to be sold, or (ii) are consumed directly and exclusively in an industrial plant in the actual manufacture of tangible personal property to be sold; or (iii) are consumed directly and exclusively in research and development by a manufacturing corporation or a research and development corporation within the meaning of MGL c. 63, §42B. The selling marijuana establishment bears the burden of proving the sale was for an exempt use unless the marijuana establishment purchaser provides a Massachusetts Department of Revenue Form ST-12 to the selling establishment.
- Sales to a §501(c)(3) charitable organization. Sales of marijuana to a marijuana establishment qualified as a charitable organization under IRS Code §501(c)(3) are exempt. The purchasing marijuana establishment must present the following to the selling establishment at the time of sale: a Massachusetts Department of Revenue Certificate of Exemption (Form ST-2), a Sales Tax Exempt Purchaser Certificate (Form ST-5), and its marijuana establishment license.
Retail Sales Receipts. The proposed regulations require marijuana retailers to list all purchased items separately on receipts, with the item purchase price, the associated taxes (itemized by type of tax and amount), and the total charge (purchase price plus taxes) specified for each listed sale item. The last line on the receipt is the total amount due for the transaction.
For example, a sale may include rolling papers with a price of $2.00 (subject to state sales tax, but not marijuana excise taxes), a t-shirt with a price of $50.00 (not subject to marijuana excise taxes or sales tax), and marijuana with a price of $200.00 (subject to state and local marijuana excise taxes, and to state sales tax).
The rolling papers will appear on the receipt as $2.00 purchase price, with a separate line for the sales tax of 6.25% totaling 13 cents, and a separate line for the total charge of $2.13 for the rolling papers. The t-shirt will appear as $50.00 purchase price, total taxes 0.00, total charge of $50.00 for the t-shirt. The marijuana will appear as $200 purchase price, a separate line for state marijuana excise tax of 10.75% totaling $21.50 for that tax, a separate line for local excise tax of (up to) 3% totaling $6.00, a separate line for state sales tax of 6.25% totaling $12.50, a separate line for the total taxes of $40.00, and a separate line for the total charge of $240.00 for the marijuana. Finally, the total amount for the transaction will be listed as $292.13.
If a marijuana retailer does not itemize the receipt as set forth above, marijuana retail taxes (state and local excise taxes plus state sales tax) may be imposed on the total sales price of the transaction. Marijuana retailers will be required to file separate returns to report sales of marijuana (on a marijuana retail tax return) and non-marijuana taxable items (on a sales and use tax return) to the Department of Revenue.
Record Keeping. Every marijuana retailer must keep the following records:
- Complete and accurate records of gross receipts and expenditures from all purchases and sales, including taxable and non-taxable transactions.
- Records of all transactions with other marijuana establishments, including all resale, tax-exempt, and marijuana establishment purchaser certificates.
- Point-of-Sale System records of all transactions. Marijuana retailers must use point-of-sale systems approved by the Cannabis Control Commission. The point-of-sale system records must allow the Department of Revenue to verify gross receipts for sales of marijuana, non-marijuana sales, and tax-exempt transactions.
Registration with Department of Revenue. Marijuana retailers must register with the Department of Revenue. Registered marijuana retailers will receive a Certificate of Registration, which the retailer must display prominently.
Filing of Returns.
- Marijuana retailers must file monthly returns reporting all gross receipts on a form prescribed by the Department of Revenue. Returns must be filed electronically and are due on or before the 20th day of the following month.
- Tax payments must be made on or before the due date for the tax return.
- The Department of Revenue may impose penalties and/or interest on marijuana retailers that fail to file a return, fail to file a timely return, fail to pay marijuana retail taxes when due, or that substantially understate the amount of tax due.
Effective Date. The public comment period on the regulations ended on May 3, 2018. The Department of Revenue expects that 830 CMR 64N.1.1: Marijuana Retail Taxes will be effective as of June 1. 2018. Marijuana retail sales are slated to begin on July 1, 2018.
If you have any questions about this client alert, please contact Ruselle W. Robinson.
This Alert is provided for information purposes only, and does not constitute legal advice. According to Mass. SJC Rule 3:07, this material may be considered advertising. ©2018 Posternak Blankstein & Lund LLP. All rights reserved.