The Tax Implications of Owning a Dispensary

As of 2019, 33 states and the District of Columbia currently have passed laws that legalize marijuana in some form.

Because of this, more and more cannabis dispensaries are opening around the country. Having your own business is great, but how does owning a dispensary work with taxes?

A big part of owning a business is learning the laws and rules that must be followed in order for that business to remain legal. If you’re curious about taxes for dispensaries around the country and how they may impact a cannabis business, keep reading to find out more.

Owning a Dispensary: How Do Taxes Work?

Dispensary owners have to pay special marijuana sales taxes for their state, state income taxes, and federal income taxes.

Marijuana is still illegal on the federal level. Because of this, cannabis companies have many more limitations in taking deductions. The IRS still requires that federal income tax returns be filed, however, because they are a business.

As you can imagine, this is quite confusing for many dispensary owners. This is why we are here to help you navigate the laws and find out what you need to be doing.

State Taxes for Dispensaries

Any state that has legalized marijuana have to be subjected to different taxes. These tax rates are going to vary by state, so they are not all the same. It’s important to realize that each state has specific taxes for this purpose as well.

Some states will also impose an excise tax on the sale of marijuana, but all states have a sales tax requirement.

Alaska

Alaska has an excise tax that has been imposed on the transfer or sale of marijuana. If the marijuana is coming from a cultivation facility to a store or manufacturing facility, this is when the excise tax would be applied.

Washington

Washington requires a person that holds a retailer, producer, or processor business license for marijuana to be subjected to a business and occupation tax. This applies to the gross receipts of the business.

Also in Washington, the business owner has to collect a sales tax on transactions and remit it to the Washington State Department of Revenue.

Colorado

In the state of Colorado, marijuana retailers have to have a sales tax license. If a business sells medical and recreational marijuana, the business has to have a license for each of these types.

Also in Colorado, businesses that sell medical marijuana have to charge a local sales tax on top of the state sales tax. Recreational marijuana will have state sales tax, state marijuana sales tax, and local sales taxes applied.

California

California also imposes taxes on medical and recreational marijuana.

A business in California that is selling marijuana or marijuana products has to register with the California Department of Tax and Fee Administration (CDTFA) for a seller’s permit.

In addition to this, California imposes a 15% excise tax on people that buy marijuana. There is a cultivation tax imposed on cultivators of marijuana as well, but it is only for harvested cannabis that goes into the commercial market.

Various Rules by State

As you can see, all of these state tax rules vary widely from state to state. Even the other states that have legalized marijuana have their own rules that may be confusing.

You need to know the specific laws for your state if you want to know about how the taxes for a dispensary will work. Getting additional tax help is important if you are unsure about how your business may be impacted by your state laws.

Why Do Dispensary Owners Have Fewer Deduction Options?

There are not as many opportunities for deductions when you have your own dispensary. The main reason for this is because of the type of product that you sell.

The business (in the eyes of the IRS) is selling or trafficking controlled substances. This is technically prohibited at the federal level or even at some state levels.

For dispensary owners, this means that deducting things like rent, advertising, or payroll is not an option as it would be for other types of businesses. The IRS does allow dispensaries to deduct the cost of growing the actual marijuana, however, because it is considered cost of goods sold.

The code that many refer to when speaking on this matter is IRS code 280E. It is one of the great barriers for many that want to get into the cannabis business legally because it creates a tax burden that some are unable to handle.

Do Deductions Really Matter?

While many businesses may just view deductions as something positive they get from the government, they actually can have a huge impact on the business itself.

Deductions are designed to help businesses save some money by getting that money in return. They allow businesses to make back some of the cash they had to spend in order to keep making money!

The problem is that when dispensaries are not allowed to have the same deductions, they are actually spending a lot more overall. They don’t get the opportunity to make back that extra money when tax season rolls around, so they spend more than the average business in the long run.

In reality, some of these dispensaries could end up having to pay more in taxes than they get in profits. This is going to depend specifically on the business and how it is doing overall.

Tax Help for Cannabis Companies

One of the great things about owning a dispensary is having the freedom to sell the products that you believe in, but dealing with the taxes can be a serious headache.

If you need some extra help with taxes for your dispensary business, check out our website and see how we can help. We offer a variety of services that your business may benefit from in the long run!