What Is the Supreme Court Cannabis Tax Ruling?

The legalization and taxation of cannabis remains one of the hottest trends in state taxation. As the New Mexico Supreme Court tax ruling declares that cannabis purchases by medical cannabis patients should not be subject to gross receipts tax, you might be interested to know that medical products from weed are also not taxed in several states. But what states, exactly? 

This article will walk you through the legalization and taxation of cannabis in different states in the US. 

States that levy tax on cannabis products 

Cannabis, also known as marijuana, has been used as a drug for both medical and recreational purposes and in various traditional medicines for centuries. Medical cannabis is legal in 37 states, Washington DC, and the US Virgin Islands. 

Most states do not levy a tax on cannabis purchases because they exempt prescription medication purchases from their general sales tax. Each jurisdiction has its own criteria for when cannabis can be prescribed, at what amounts, and the process for issuing medical cannabis licenses to qualified consumers. 

On the other hand, other states may tax cannabis at a lower rate than other items sold at retail. Medical cannabis purchase taxes are generally low and equal to the state’s general sales tax rate. Therefore, these taxes are not classified as “marijuana taxes.” 

This is mainly because cannabis is still federally classified as a prohibited drug in the US. So, while many states have legalized cannabis for medical purposes, prescribing it remains nearly always illegal at the federal level. Moreover, the FDA has only approved a certain number of cannabis derivatives for prescription medication use.

The table below shows how cannabis tax differs across states.

supreme court cannabis tax ruling
The cannabis tax rate in each state (Source: taxpolicycenter.org)

How is cannabis taxed across states?

In general, state and local governments tax medical cannabis in three main ways.

  • Price-based. Price-based taxes are similar to general sales taxes in that the consumer pays a tax on the purchase price, which is then remitted to the state by the retailer. Like other excise taxes, the tax rate is usually higher than the state’s general sales tax rate. Most states impose this tax at the point of sale (i.e., the consumer pays the tax together with the price of the goods at checkout). Meanwhile, a few other states apply their percentage of price tax to wholesale transactions. For instance, the cultivator or distributor pays the tax), and this cost is passed on to the consumer in the final purchase price. Some states also allow local governments to impose a percentage of sales tax, but usually with a limit on the maximum rate. 
  • Weight-based. These taxes are similar to cigarette taxes, but the tax is based on the cannabis product’s weight instead of taxing per pack of cigarettes. The wholesale transaction is subject to this tax. It means that the cultivator or distributor pays the tax, then includes it in the final cost of the consumer purchase. States that apply this form of tax usually have varying tax rates for different types of cannabis. For instance, California taxes cannabis flowers at $9.65 per ounce, cannabis leaves at $2.87 per ounce, and fresh plant material at $1.35 per ounce.
  • Potency-based. Potency-based taxes are similar to alcohol taxes, except that instead of taxing drinks with a higher percentage of alcohol at higher rates (e.g., the tax rate on liquor is higher than beer), the tax is based on the amount of THC in the cannabis product. Currently, Illinois is the only state applying a THC-based tax. It levies a 10% tax on items with a THC concentration of 35% or less, and a 25% tax on those with THC exceeding 35%. All cannabis-infused products are subject to a 20% tax. New York has also established a potency-based tax recently. However, it taxes per milligram of THC, with different amounts applied to different items.

Some states levy more than one of these taxes. Additionally, some states and localities levy their general sales tax on the purchase of cannabis in addition to their excise taxes.

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The bottom line

There is still much confusion regarding the supreme court cannabis tax ruling. Still, as more states open legal marketplaces and more research is carried out to understand the externalities of consumption, business owners will better understand this industry’s taxation. 

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An Open Letter on Marijuana and Other “Unscannables”: The Official Shoeboxed Return Policy

Since our inception in 2007, we’ve received enough documents and receipts to meet the entire paper demand for a small country. But hey, no complaints here! We’re the people that actually like organizing your paperwork. We relish it. Honestly, without the world’s paper clutter, we’d be jobless. However, from time to time our beloved customers send us more than just their documents, receipts and business cards. In fact, personal items from far and wide frequently make their way to Shoeboxed HQ in one of our beautiful blue envelopes. And we understand why. When it’s time to clear off your desk or countertop, our envelopes are ready to catch it all — regardless of the contents. Talk about ultimate handiness. But unfortunately our data extraction scanners don’t seem to enjoy scanning certain items.

Around Shoeboxed, these outcasts are affectionately referred to as “unscannables.”

So over the past four years, you can imagine the plethora of unscannables we’ve come across. Everything from 50 dollar bills, hair clips, socks, unused condoms, breakup letters and beautiful origami pieces have landed on our doorstep. We take great pride in ensuring that these outcasts make their way back to their rightful owners, no questions asked. However, yesterday we received an unscannable that left our Shoeboxed team both puzzled and amused, and we just wanted to take a moment to share the laugh.

Yesterday morning, like many mornings prior, hundreds of blue envelopes filled with paper clutter made their way into the Shoeboxed Operations Center where our scanning and data extraction began in earnest. But one of our verifiers must have sat puzzled for some time, uncertain how exactly to categorize, let alone attempt to scan, one unusual smelling green item. For those of you unfamiliar with our top secret data extraction process, we’ll let you in on a little secret: “medicinal herb” does not fit well through our scanners, particularly when it’s in large bags. Now, under normal circumstances we would contact the owner and have their “unscannable” sent back to them ASAP. But for a great many reasons, this conundrum left us Shoeboxers thrown for a bit of a loop. After all, how can you blame a document digitization company for not including a section on controlled substances in our return policy?

To our valued customer (who may have just recently, and sadly, discovered the absence of this personal item): don’t worry, there is most certainly no judgment here. We get it. It’s medicinal. You’ve got one of those neat cards that allows you to legally purchase marijuana. Despite this fact, please understand that given current legal precedents we highly doubt that Shoeboxed will be able to return your “lawn clippings” to you, and for this we would like to extend our most sincere apologies.

In the meantime, why don’t we just forget this ever happened, agree to keep this little incident between us and we’ll call our lawyers about drafting a new revision of the official Shoeboxed return policy.

Stay Organized (and law-abiding),

The Shoeboxed Team