Sales tax on medical marijuana can be a controversial topic.
According to a study, medical cannabis (also known as medical marijuana) can positively benefit people with medical conditions such as glaucoma, cancer, epilepsy, nausea, and chronic pain.
Since medical cannabis is used to treat illnesses, you might think that it wouldn't be taxable like other prescription drugs in most US states. However, medical cannabis is treated a little differently.
This is mainly because cannabis is still considered a federally illegal drug in the United States. Therefore, while many states in the United States have legalized cannabis for medical purposes, it is almost always illegal to prescribe it federally. In short, the FDA (Food and Drug Administration) has only approved certain cannabis derivatives as a prescription treatment.
Sales tax is set at the state level, not at the federal level. Some state legislators consider it a taxable commodity like any other. In contrast, other state legislators are concerned that taxing a medical product would place an undue tax burden on individuals who are already sick. Additionally, in recent years, many lawmakers, like Larry Bagley of Louisiana, have changed their minds about taxing medical cannabis because they've encountered voters whose medical conditions benefit from the drug.
Most (but not all) medical marijuana is considered over-the-counter for sales tax purposes. And each state treats over-the-counter drugs, including medical cannabis, differently.
How States Tax Medical Cannabis
Although medical cannabis is taxed in most states, it is usually taxed differently than recreational cannabis.
While recreational marijuana is often subject to local and state sales tax and/or additional sales tax or excise duty, medical cannabis is generally only subject to state and local sales tax. Local, like any other taxable item sold in the retail market.
However, some states treat medical cannabis like other drugs and do not charge or tax it at a lower rate than other retail items.
Here is how each state handles Medical marijuana
Alaska
All cannabis, whether used for medical or recreational purposes, is taxed the same in Alaska. The state marijuana tax in Alaska is currently set at $50/ounce for marijuana buds/flowers, $25/ounce for immature or abnormal buds/flowers, and $15/ounce for leaves/size.
Alaska collects a cannabis grower tax but does not have a state sales tax and therefore does not require Alaskan cannabis sellers to collect a state retail sales tax. (i.e., when they sell to the public).
However, some local areas, such as Anchorage, have a sales tax. In this case, cannabis sellers must collect local sales tax when selling medical cannabis.
Arizona
In Arizona, medical cannabis is subject to the Transaction Privilege Tax (TPT), which is the Arizona version of sales tax.
Medical cannabis is subject to the same national and local Transaction Privilege Tax (TPT) as other purchases. But, unlike recreational marijuana, it is not subject to additional excise duties.
However, Arizona lawmakers have attempted to add a 5% excise tax to medical marijuana sales in the past.
Arkansas
In Arkansas, medical marijuana is taxed at the same local and state sales tax rate as other items.
In addition to local and state sales tax, a 4% excise duty on medical cannabis is levied on gross revenue from cannabis sales usable by a growing unit, dispensary, or other cannabis business.
The 4% special privilege fee expired on July 1, 2021.
California
Although recreational cannabis is taxable in California, the state allows a retail sales tax exemption for medical cannabis, medical cannabis concentrate, medical cannabis edibles, and topical cannabis, as defined.
Colorado
Medical marijuana is subject to the same state and local sales taxes as other retail items.
Connecticut
In Connecticut, medical cannabis is subject to the same state and local sales taxes as other retail items.
Delaware
Medicinal cannabis is legal in Delaware, but the state does not have a sales tax. Therefore, there is no retail sales tax on medical cannabis.
District of Columbia
The sale of medical marijuana is subject to the Washington DC sales tax rate, which is easy because the district has a single sales tax rate of 6% at the time of writing.
Florida
Medical cannabis and marijuana delivery devices are exempt from sales and use taxes in Florida.
Hawaii
Hawaii has a GET (General Excise Tax) instead of a sales tax. Although most prescription drugs are not taxable in Hawaii, this does not apply to medical marijuana. Medical cannabis is subject to the same GET as other state retailers.
Illinois
In Illinois, medical marijuana is taxed at the same rate as other eligible drugs. This means that you are only subject to 1% retailer's use tax (ROT, the Illinois version of sales tax).
However, some areas have a local, regional transportation authority and fees in the Eastern Metro Transit District, and medical cannabis cannot be exempt from these fees. The State Department of Revenue offers a convenient search for your Illinois sales tax rate so you can see the medical marijuana sales tax rate in your district.
Maine
Medicinal cannabis is subject to the normal rate of Maine sales tax. There are no local sales taxes in Maine.
Maryland
Medical cannabis, like other over-the-counter and prescription drugs, is not subject to Maryland sales tax.
Massachusetts
Medicinal cannabis sold to a qualified purchaser is not subject to Massachusetts sales tax.
Eligible purchasers must present their medical marijuana identification cards.
Michigan
Medicinal cannabis is subject to the standard Michigan state sales tax rate. Michigan does not have a local sales tax.
Missouri
Missouri imposes a 4% retail sales tax on medical cannabis sold at medical cannabis dispensaries.
Montana
Although Montana does not have a state sales tax, medical marijuana is taxed at a 4% sales tax rate.
Nevada
Medical marijuana is subject to state and local sales taxes in Nevada.
Nevada does not require retailers selling to end-users to collect the normal 10% excise tax levied on recreational cannabis in the state.
New Hampshire
New Hampshire does not have a state sales tax, so medical cannabis is not taxable in New Hampshire.
New Jersey
New Jersey currently charges a 4% sales tax on the sale of medical cannabis through a dispensary or clinical registry. As of July 1, 2021, this tax increased by 2%. And starting July 1, 2022, the tax will be 0%, meaning medical cannabis will no longer be taxable in New Jersey by mid-2022.
New Mexico
Medicinal cannabis is subject to New Mexico state and local Gross Income Tax (GRT), New Mexico's sales tax version.
New York
Medical cannabis is zero-rated in New York when sold to customers. However, retailers/retailers must pay excise duty, which is currently 7% of gross revenue.
North Dakota
Medicinal cannabis in North Dakota is subject to state and local tax rates.
Ohio
Medical cannabis is subject to local and state Ohio sales tax.
Oklahoma
Medicinal cannabis is subject to Oklahoma's local and state sales tax and an additional 7% gross income tax.
Oregon
Medical cannabis is not taxable in Oregon. Oregon does not have a state sales tax.
Pennsylvania
Medicinal cannabis is not subject to Pennsylvania retail sales tax. On the other hand, producers and/or processors are taxed on the gross income.
Rhode Island
Medicinal cannabis is subject to the Rhode Island state sales tax rate. Rhode Island has no local sales tax.
South Dakota
South Dakota only legalized cannabis sales on November 3, 2020. The state has yet to finalize the medical cannabis sales tax.
Utah
Medical cannabis is tax-exempt in Utah. However, cannabis-based medical devices are subject to state and local taxes.
Vermont
Like other medications, medical cannabis is exempt from sales tax in Vermont.
Washington
All cannabis in Washington is subject to state and local sales and use taxes and a 37% cannabis excise tax.
However, certain exemptions are available for retailers with medical marijuana approvals.
West Virginia
Medicinal cannabis is not subject to sales tax in West Virginia. However, producers and/or processors will be charged a special fee when selling to a dispensary.
We hope this answers your questions about medical cannabis sales tax.
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