Most states that have legalized recreational cannabis impose an excise tax on the transfer or sale of marijuana products in addition to sales tax.
If you’ve worked in the cannabis industry or recently opened up a dispensary, it’s worth learning more about the excise tax on cannabis. Usually, the consumers pay the costs, but business owners are responsible to remit those taxes to the state.
Here’s everything you need to know about the cannabis excise tax and how it impacts you.
What Is Excise Tax on Cannabis?
Excise taxes are those imposed on specific services, goods, or activities. Some examples include:
The State of Michigan also imposes an excise tax on cannabis for the sale of marijuana products. It applies to cannabis itself as well as products made with cannabis, such as food or beverages that contain cannabis or THC.
These excise taxes get distributed by the Michigan Department of Treasury to the municipalities and counties who opted in a marijuana ordinance in the state and the allocation depends on how many licenses that municipality has and the type of licenses they allow. These tax dollars are helping local governments increase their budgets to be able to increase public safety, school, and road funds.
Who Is Responsible for Paying the Excise Tax on Cannabis?
Retailers are responsible for remitting the excise tax. The businesses collect the tax from the consumers based on the retail price of cannabis.
Different states may require payment of excise tax at different intervals. Some require monthly payments following the sale of all cannabis products that month, with late payments subject to interest and penalties, while others may require quarterly or annual payments.
Unfortunately, the government can’t accept ACH credit or Fedwire payments for the cannabis excise tax. Taxpayers must pay using an ACH debit or a credit card. Most taxpayers pay this amount online through their state’s self-service tax portal.
Is There an Excise Tax on Medical Marijuana?
Medical cannabis sales are not subject to the cannabis excise tax under the MFFLA. Medical marijuana sales are exempt from this additional excise tax as long as the product was sold by a licensed medical cannabis dispensary or by a registered caregiver that sells to its patients.
How Is Adult-Use Recreational Cannabis Taxed in Michigan?
Michigan legalized cannabis in 2018 and made it available for sale in 2019. Since then, cannabis has been subject to a 6% sales tax and a 10% excise tax.
Michigan’s percentage is average compared to other states, like Vermont with 14%. Marijuana companies must also file federal and state income taxes annually, but there are no additional local taxes.
The business making the sale is responsible for collecting the excise tax and sending it to the state department. The company and the individuals who own/manage the business can be held accountable if the payment is not collected.
Calculating Cannabis Taxes in Michigan
Michigan dispensaries need to know how to correctly add up their taxes to pay the right amount and not face government penalties. First, you need to calculate the excise fee, which is 10% of the sales price. Add that to the total. Once you get a new total after completing the first tax calculation, you add 6% of that new number (the sales tax) to the total. The figure at the end is your cumulative taxes, which Michigan requires from businesses.
What Is Excise Tax on Cannabis in Michigan?
The excise tax on cannabis in Michigan is 10% of the sales price on transferring marijuana products between cultivators, processors, and retailers. Note that this percentage fee is in addition to all other taxes, which include the state’s 6% sales tax.
The Michigan excise tax typically gets added to the receipt. Businesses that sell cannabis products collect the excise fee at each purchase, and the government then collects this from businesses once each quarter.
The excise amount collected from marijuana businesses is part of the Michigan Regulation and Taxation of Marijuana Act. The proceeds go into a fund to support public schools, transportation, and other local initiatives. In addition, the Michigan Treasury announced in 2022 that it would distribute $42.2 million to municipalities and counties.
Need Accounting Advice? Contact Us!
Cannabis laws in Michigan can be confusing to navigate, especially on your own. Ensure you correctly calculate and file excise taxes for your Michigan marijuana business. When you work with the experts at MI Tax CPA, you gain the insight and guidance of an expert. Call our team to get started today!
What tax code affects marijuana businesses the most?
The 280E code significantly impacts the retail operations of most marijuana businesses since it’s directly linked to selling (trafficking) cannabis-related products.
Do dispensaries get audited?
Yes. Often, dispensaries have higher odds of getting audited because it’s a high-risk industry that involves a lot of cash because of the banking and credit card merchant processing restrictions.