by Saleem A. Shareef
The Maryland Comptroller’s Office has provided guidance on the sales and use taxation of cannabis including licensing, registration, and filing requirements as well as exemptions. (Maryland Tax Alert, Questions and Answers for Cannabis Businesses, 06/05/2023; Maryland Tax Alert, Questions and Answers for Cannabis Individuals, 06/05/2023.)
Taxation of cannabis.
Recently enacted legislation (see State Tax Update, 05/08/2023) imposes a sales and use tax on the sale of adult-use cannabis in Maryland. The tax rate is 9% of the purchase price of any product containing cannabis. The tax begins fiscal year 2024 (i.e., July 1, 2023). However, sales of most other products (e.g., glass pipes, hookahs, rolling papers, hemp products, clothing, food or edible products not containing cannabis, and souvenirs) are taxed at the usual state sales tax rate of 6%, with special rates applicable to specific items including electronic smoking devices and tobacco pipes and vaping liquids that do not contain cannabis or cannabis products. The law distinguishes ”cannabis“ from “hemp” based on the plant’s delta-9-tetrahyrdocannabinol concentration level. “Cannabis” means the plant Cannabis sativa L. and any part of the plant, including all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9-tetrahydrocannabinol concentration greater than 0.3% on a dry weight basis. “Hemp” has a delta-9-tetrahydrocannabinol concentration that does not exceed 0.3% on a dry weight basis.
Licensing and registration requirements.
Businesses must register with the Maryland State Department of Assessments and Taxation (SDAT) before applying for the sales and use tax license as required for any entity conducting business in Maryland. In addition, a cannabis business must comply with the licensing requirements of the Maryland Cannabis Administration. A cannabis business making retail sales of cannabis and cannabis products must obtain the Sales and Use Tax License from the comptroller for each business location, and a Traders License from the clerk of the circuit court of the county in which the business is located. If a cannabis business operates more than one sales location subject to the same ownership or general management, the cannabis business must obtain a Chain License from the clerk of the circuit court.
Filing requirements.
Dispensaries and on-site consumption establishments that make retail sales of cannabis or cannabis products must collect the sales and use tax. Businesses should file online using bFile, but can file a paper return. The sales and use tax return Form 202 should be used to report sales on Line 12 (i.e., “Sales subject to the 9% rate under Senate Bill 516 of 2023”) and taxable purchases on Line 23 (i.e., “Taxable purchases subject to the 9% rate under Senate Bill 516 of 2023”). Cannabis businesses operating more than one location in Maryland must file a separate return for each location. Businesses assigned a monthly filing frequency must file by the 20th day following the end of the month. Businesses assigned a quarterly filing frequency must file by the 20th day following the end of the quarter. Businesses that file on time can claim a credit (i.e., a timely filing discount) against the tax payment on Line 14. The maximum available credit per return is $500. The credit can be claimed on each separate return for businesses operating more than one location. Sales records must be kept for four years.
Exemptions.
Business-to-business transactions: The tax does not apply to sales of cannabis between cannabis businesses that are licensed by the Maryland Cannabis Administration (e.g., a sale by a cannabis grower to a cannabis processor). The buyer must present a resale certificate to the seller, who retains the certificate as part of the sales record. The buyer should include the buyer’s sales and use tax license number or, if not required to have a sales and use tax registration number, a Maryland Cannabis Administration license number on the certificate.
Medical cannabis: The tax does not apply to sales of medical cannabis at dispensaries or on-site consumption establishments. The buyer must present their medical identification card issued by the Maryland Cannabis Administration or, if not expired, by the predecessor agency, the Maryland Medical Cannabis Commission. However, any amount of cannabis sold to a patient or caregiver that exceeds the amount certified by their provider is subject to sales and use tax.
Existing exemptions: Purchases of cannabis or cannabis products by nonprofit charitable, educational, or religious organizations or farmers can be exempt under the existing exemptions for purchases made to carry on the work of nonprofit organizations or purchases of farm equipment used for traditional agricultural purposes. However, nonprofit organizations cannot purchase and resell cannabis to raise funds or otherwise distribute cannabis for fundraising purposes. Maryland also has an existing exemption for sales of tangible personal property used directly and predominantly in production activities, or sales of tangible personal property for resale or incorporation as material or part of tangible personal property produced for sale.
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