Agricultural Sales Tax Exemption and Medical Marijuana

Much has been written about Section 280E of the Internal Revenue Code and how it impacts the cannabis industry. State and local tax issues, however, have received very little attention. The CohnReznick State and Local Tax team is working diligently to identify state tax incentives that could benefit cannabis businesses, as well as potential hazards to avoid.

Although some states have legalized medical marijuana, many states have yet to determine if and how sales taxes would apply to the purchase of equipment, materials, and supplies used in the production and distribution of medical cannabis.

States generally provide a sales and use tax exemption for certain activities relating to agricultural production. These activities include the raising, cultivating, or harvesting of agricultural products, crops for sale for human consumption, or plants useful to humans.

A handful of states, including California, Connecticut, New Jersey, and Oklahoma, have provided guidance on sales and use tax exemptions relating to medical cannabis cultivation. For states that have not explicitly addressed whether certain aspects of medical cannabis cultivation qualify for a sales and use tax exemption, it is crucial for taxpayers to understand how a state, or locality, would apply its laws to purchases used in such a manner. [Read More @ Cohn Reznick]