Massachusetts levies several taxes on adult use marijuana at both the state and local level.
State: 17%
At the state level, retailers pay:
Sales Tax: 6.25%
Marijuana Excise Tax: 10.75%
Note that the state level taxes are only levied on the retail sale of marijuana and not wholesale transactions between licensees. Speaking to a CPA early in the process of starting a marijuana business is key to ensure that you have the correct entity type(s) set up under this tax regime.
Local: Up to 3%
Each town is allowed by law to assess a tax up to 3% in order to cover the increased costs to the municipality brought by the operation of a marijuana business. Unlike taxes at the state level, the local tax is levied against all adult use licensees and not just retailers. The specific rate is negotiated as part of the Host Community Agreement between the marijuana establishment and the town. Section 3(d) of chapter 94G reads that an HCA:
… may include a community impact fee for the host community; provided, however, that the community impact fee shall be reasonably related to the costs imposed upon the municipality by the operation of the marijuana establishment or medical marijuana treatment center and shall not amount to more than 3 percent of the gross sales of the marijuana establishment or medical marijuana treatment center or be effective for longer than 5 years.
Although by law, this tax is supposed to be capped at 3%, many municipalities have also required marijuana companies to make “donations” either in hard dollar amounts or as a percentage of sales to local organizations.
There has been pushback by comissioner Shaleen Title on this practice of taxing a business without classifying it as a tax, but the conclusion by the divided commission as of August 2018 has been to not review HCAs for compliance. Thus, many of these hidden taxes have been allowed to stand.
Federal
With marijuana remaining a schedule I substance, the issue of federal taxation via income taxes is a complex and constantly evolving issue that is beyond the scope of this post. There are many complications depending on whether you operate as a retailer, manufacturer, cultivator or all three and how you choose to organize as one or multiple business entities through the vertical. Needless to say, as a business owner or member of the finance team, you should intimately familiarize yourself with what is known as 280E. I plan to write a further post with more detail of 280E and federal, which I will link to from here once it is up.
As usual I am neither a lawyer nor a CPA so certainly approach several early in the process to get definitive advice when it comes to corporate organization and taxation. This post is for educational purposes only and should not be considered legal or tax advice.