How to Calculate Cannabis Taxes?

Cannabis Taxes

Cannabis is legal in most states in the United States. Due to greater accessibility across the country, this is a lucrative and in-demand industry. Cannabis is an expensive industry to enter, and many new businesses fail before they even get off the ground. This is due to the fact that many business owners are unprepared for the financial burden of tax season.

Saving money for taxes throughout the year is a crucial part of financial planning. Businesses that deal in medical marijuana must project their tax liabilities. But how can business owners calculate the amount of taxes they will owe?

The following approach will assist cannabis businesses in calculating their tax liabilities by determining their medicinal cannabis tax. Businesses can use this information to get ready for a less stressful, more structured tax season.

Taxes Vary From State-To-State

The tax on medicinal marijuana you must pay depends on where your cannabis business is located. Always keep in mind that these taxes are additional to any other municipal and state taxes.

StateExcise Tax
California15%
Oklahoma7%
Colorado2.9%
Illinois1%
Montana4%
New Jersey2% (May get eliminated soon)
New York7% (not subject to any other tax)

The below mentioned states do not charge excise tax for medical cannabis:

ConnecticutDelaware
HawaiiFlorida
IowaMaryland
MaineMassachusetts
MissouriNevada
North DakotaOhio
OregonPennsylvania
Rhode IslandUtah
South DakotaVermont
Washington 

Despite the absence of an excise tax in some states, municipal and state sales taxes are still applicable.

Medical cannabis purchases made in Louisiana, Minnesota, and New Hampshire are tax-free.

Tax Rates

States have made an effort to strike a balance when determining tax rates. The same rationale applies to all taxes, including those on cannabis, for the imposition of an excise tax on sales. Increasing the cost of the product is aimed to discourage usage, while also fairly compensating for the production of the product.

High taxes may be a deterrent for new or occasional users. On the other hand, excessive tax rates might continue to facilitate the rise of the black market. The effective tax rates on marijuana in many states are fairly high; often between 20 and 40 percent, which can make products on the illicit market more enticing.

States like Washington and Colorado, which were among the first to impose marijuana taxes, have thought about reducing them. On the other hand, when revenues were considered to be underperforming in comparison to other states, Massachusetts raised the marijuana excise tax from 3.5% to 10.75%.

What Is Taxed?

  • All cannabis plants, both processed and raw, including dried and fresh cannabis flowers (but not industrial hemp products),
  • any product containing a cannabis plant, and
  • any cannabinoid compounds or identical substances found in cannabis plants (cannabis oils).

What Is Not Taxed?

  • unusable seeds of a cannabis plant,
  • mature stalks (sans leaf, flower, seed, or branch)
  • fiber from the mature stalk,
  • the root.

Cannabis products exempt from duty tax include:

  • low –THC cannabis products (less than 0.3% THC),
  • cannabis that is grown for personal use, and
  • Prescription medical cannabis

How You Can File Your Taxes The Right Way

  • Gather Your Documents
  • Calculate Your Business Income
  • Understand Your Deductions
  • Calculate the Cost of Goods Sold
  • State and Local Taxes
  • Keep Impeccable Records
  • Be Ready for the audit

Bottom Line

Taxes are an integral part of doing business. It can be difficult for cannabis businesses to handle marijuana taxes. Compared to other businesses, you are responsible for a lot more taxes. Additionally, tax officials are paying far greater attention to your business.

You should educate yourself about your tax responsibilities so that you are aware of the problems and how they may impact your business.

You must rely on an experienced team of experts for assistance when it comes to filing cannabis taxes for your company.

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