State Taxation of Cannabis: Interplay With Federal Taxation, Recent Cases and State Initiatives

Taxing cannabis is a lucrative endeavor for states. At least 34 states have laws permitting (legalizing or decriminalizing) medical use of cannabis (including 10 states plus D.C. that have also legalized/decriminalized recreational use) and several other states that permit the use of CBD oil. As states pursue taxation of this lucrative substance, understanding how it is taxed and the interplay between the federal and state taxation is critical for advisers.

In addition to the expected sales taxes imposed, states charge per ounce fees, growers tax, excise tax, and other inventive taxes on this profitable industry. At the same time, it remains an illicit substance under federal law. IRC Section 280E disallows deductions of business expenses other than the cost of goods sold since these are expenditures in connection with the illegal sale of drugs.

Rent, wages, advertising, and other costs incurred by cannabis businesses are also not deductible, leaving these businesses paying tax at effective rates reported to be as high as 70-90%. For practitioners working with these businesses, which will only continue to increase in number and size, understanding the various state taxes imposed on these businesses is vital.

Listen as our panel of experts explains the current state of taxation of cannabis businesses, the varying state taxes imposed on the industry, and steps practitioners can take to mitigate the excessive fees charged.

1. Cannabis, an overview
2. Federal taxation
3. State taxation
4. Choice of entity
5. Court cases
6. Best practices

The panel will review these and other essential issues:

• What states have legalized cannabis?
• How is cannabis taxed in states that have legalized the substance?
• What is the difference in tax treatment for medical and recreational use?
• At what point and to which type of businesses are taxes on cannabis imposed?
• What steps can practitioners take to mitigate the many taxes imposed on cannabis providers?

Learning Objectives

After completing this course, you will be able to:

• Identify states that have legalized recreational use of cannabis
• Distinguish between types of taxes imposed by states
• Determine whether a particular business may be subject to cannabis taxation
• Decide which states may impose tax on the sale of cannabis

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and sole proprietorships, qualified business income, net operating losses and loss limitations; familiarity with net operating loss carry-backs, carry-forwards and carried interests.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.