Now my advice for those who die
Declare the pennies on your eyes
'Cause I'm the taxman, yeah, I'm the taxman
And you're working for no one but me.
Taxman, The Beatles
On Jan. 18, the Michigan Department of Treasury (Treasury) issued a bulletin describing how medical cannabis provisioning centers (also commonly called “dispensaries”) will pay taxes under the Michigan Medical Marihuana Facilities Act (MMFLA).
In addition to paying taxes on its gross sales, the bulletin provides that the tax applies to everything sold by the provisioning center, including all non-cannabis related items and services. It also imposes significant additional, non-MMFLA related taxes on provisioning centers and even taxes the additional taxes. If you think this sounds like double-dipping – it is.
The MMFLA requires provisioning centers to pay three percent of their gross retail receipts within 30 days of the end of each quarter to the Treasury. Tax collected by Treasury goes into the “marihuana excise fund,” along with fees, fines and charges imposed by the MMFLA. Investment income from the excise fund is also included. The excise fund is kept separate from the state’s general fund.
Treasury allocates the excise fund to specific purposes. Municipalities hosting a “marihuana facility” (a broader term that includes all regulated facilities, not just provisioning centers) receive 25 percent of the tax proceeds, while hosting counties receive 30 percent. An additional five percent goes to county sheriffs. The state’s “first responder presumed coverage fund” receives 30 percent. The state police and the program for training local law enforcement each get 5 percent.
However, Treasury has also concluded that in addition to the taxes required under the MMFLA, the six percent sales tax under the General Sales Tax Act (GSTA) and the Use Tax Act (UTA), each. According to Treasury, the GSTA’s imposition of taxes on the sale or use of tangible personal property and the UTA’s tax on services do not exempt medicinal cannabis. Neither does the MMFLA exempt medical cannabis from either of the taxes.
Prescription drugs are exempt under both the GTSA and the UTA. However, according to the Treasury, medical cannabis is not delivered via prescription, but rather through the use of a registry card that indicates that the patient “has a debilitating medical condition.” As this means of acquiring the medical cannabis is not a “prescription,” Treasury reasons, then, that the exemption does not apply to medicinal cannabis.
So, because cannabis edibles are like food, one would think that as food, they would be exempt under the GTSA and UTA because they are “food or food ingredients.” Except that’s wrong. That is, Treasury states that they are consumed not for their food or nutritional value, but for their medicinal use, so they do not qualify. Therefore, they will also be taxed under the GTSA and UTA.
If the piling on seems extreme, it doesn’t end there. The MMFLA three percent tax also applies to sales and use taxes when the provisioning centers sells products or provides services that are subject to the taxes. The example Treasury provides shows the multiplying effect of its bulletin:
ABC, Inc. is a provisioning center. ABC sells marihuana to Customer for a sales price of $100. ABC is liable for $3 in tax under the MMFLA. ABC also is liable for sales tax based on 6% of $103, which amounts to a sales tax liability of $6.18. ABC must report and remit $3 on its return under the MMFLA and $6.18 on its sales tax return.
Provisioning centers must submit their taxes within 30 days after the end of the quarter, providing the gross quarterly retail receipts and the amount of tax due under the MMFLA. Sales taxes are handled separately and may be paid electronically. All taxes may also be paid to the Treasury’s local office by check or cash.
Of course, when all is said and done, the provisioning center’s receipts are also subject to federal tax laws, which do not allow cannabis-related businesses from deducting normal business expenses.
Treasury’s policy will likely receive some challenge. Essentially, the Michigan Legislature already provided for 30 percent of a provisioning center’s income to the general fund (for first responders). It is likely that the Legislature did not fully appreciate additional taxes that could be imposed.
Further, the purpose of the MMFLA is to provide medicine, which is not normally taxed, but was for specific purposes under the MMFLA. Treasury’s bulletin seems to be at cross purposes with the establishment of a process to facilitate the delivery of necessary medicine by further adding tax revenues to the general fund.
The Legislature may soon be pressured into considering an amendment to the MMFLA to keep the state from double-dipping and to preserve the law’s purpose of providing available and affordable medicinal cannabis to patients.
- Senior Attorney
A senior attorney in Plunkett Cooney’s Bloomfield Hills office, Saulius K. Mikalonis leads the firm's Environment, Energy and Resources Law and Cannabis Law industry groups.
Mr. Mikalonis focuses his practice on all aspects of ...
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