Cannabis can be taxed at many stages of the production and distribution chain. Additionally, it is subject to local and state taxes. The tax system will probably change to include federal taxes if the federal government decides to legalize cannabis.
With the elimination of the New Jersey sales tax on medicinal cannabis purchases beginning on July 1, 2022, patients enrolled in the New Jersey Medicinal Cannabis Programme (NJMCP) will be paying less overall. Retail purchases of recreational cannabis will continue to be subject to a 6.625% sales tax. The taxation of cannabis, both medicinal and recreational in New Jersey will be discussed in this blog:
NJ Taxes for Cannabis
Social Equity Excise Fee (SEEF)
Cannabis growers are required to levy a Social Equity Excise Fee for any recreational cannabis sales or transfers. The average retail cost of cannabis for consumption in the state serves as the basis for the Social Equity Excise Fee. The fee was $1.10 per ounce for 2022. However, the state has the right to modify the fee each year.
The Social Equity Excise Fee (SEEF) has been increased to $1.52 per ounce of marijuana beginning January 1, 2023.
Sales and Use Tax Retail Sales
Cannabis sales in New Jersey are taxed at the same rate as most other purchases. The rate of sales tax at the moment is 6.625%. Expect to pay sales tax if you purchase marijuana for recreational use. Medical marijuana has been declared tax-free since 1 July 2022.
A municipality in New Jersey may use the CREAMM Act to impose a local transfer or use tax on the sale of recreational cannabis by a holder of one of the four types of licenses.
The rates may not exceed:
- 2% of the receipts from each sale by a cannabis cultivator/manufacturer/retailer;
- 1% of the receipts from each sale by a cannabis wholesaler.
Recreational Cannabis Taxes New Jersey
Recreational marijuana in New Jersey will be subject to two state taxes as well as a local tax. Consumers will still be required to pay the 6.625% state sales tax, but cannabis growers will also be charged an excise tax that will go up over time.
The tax will amount to 33% of 1% of the per-ounce average retail price for the first nine months of legal sales. After then, the tax will be determined by the price per ounce of marijuana, as shown below:
- The average retail price per ounce is above $350 – $10 per ounce
- The avg. retail price per ounce is between $250 and $350 – $30 per ounce
- The average retail price per ounce is between $200 and $250 – $40 per ounce
- The avg. retail price per ounce is below $200 – $60 per ounce
Municipalities in New Jersey may also adopt local cannabis taxes by ordinance; these taxes cannot be higher than 2% for cannabis growers, manufacturers, and/or retailers, and 1% for wholesalers. Each sale’s receipts determine the tax percentage, which is payable directly to the municipality.
Tax Exemptions And Deductions In New Jersey
Additionally, many purchases made by cannabis firms are exempt from taxation under the recreational cannabis regime. If the necessary tax exemption requirements for each transaction have been met, these purchases are excluded from the sales tax because they do not fall under the normal taxation structure. To be eligible for tax reduction on these purchases, they must be properly recorded.
Any personal property sold for resale, machinery, or equipment needed to produce cannabis, as well as any packaging or containers for delivering cannabis products to customers, are all tax-exempt purchases.
A Resale Certificate (Form ST-3) or an Exempt Use Certificate (Form ST-4) must be submitted by the party requesting the exemption. Cannabis businesses are not able to claim the standard deductions and credits that other businesses are allowed under Section 280E of the Internal Revenue Code because cannabis is still classified as a Schedule 1 restricted substance under federal law. However, the IRS has made it clear that cannabis operator can now deduct the cost of inventory when paying their federal taxes for their cannabis companies.
Multistate operators must stay up to date on state and local taxes that are pertinent to their cannabis operations as well as changes to the IRS tax code.