What You Need to Know About Massachusetts Cannabis Business Taxes

Massachusetts legalized marijuana for adult use in 2016 and began collecting taxes on the sale of marijuana in 2018. If you are currently operating a cannabis business or you are considering starting one, there are several things you need to know to ensure that you are in compliance with Massachusetts law. Understanding your tax responsibilities is critical to ensure the success and longevity of your business. If you have questions about your tax obligations, contact Boston cannabis tax attorney Kevin E. Thorn to ensure you are in compliance.

You Must Be Licensed to Sell Cannabis Products in Massachusetts

First, you should be aware that you need to first obtain a license in order to sell cannabis for adult recreational use in Massachusetts. This will require you to register with the Cannabis Control Commission and the Department of Revenue. You will begin the process by requesting a Certificate of Good Standing. Once registered, you will be able to begin selling cannabis products. The licensing process takes approximately 90 days to complete. Once registered, you will then be obligated to pay taxes to the Massachusetts Department of Revenue by the 20th of each month.

Medical Marijuana Dispensaries Are Exempt

Medical marijuana dispensaries are not obligated to pay taxes if they are selling only to purchasers who are registered medical marijuana patients. If you currently operate a dispensary and wish to sell to non-medical use customers, you will need to first obtain a license and begin paying taxes on any retail sales.

Understanding the Massachusetts Cannabis Tax Rates

Currently, cannabis sales are subject to the following taxes in Massachusetts:

• A state sales tax of 6.25%
• A state excise tax of 10.75%
• A local sales tax of up to 3%

While the state taxes will be the same no matter where you are located, you will need to know whether a local tax applies and what rate is being charged.

Only the sale of marijuana will be taxed at these rates. Any other goods sold by your business will be taxed at the ordinary retail sales tax rates.

Business Deductions for Cannabis Retailers

The question of deductions is complicated. Under federal law, marijuana is still considered an illegal Class I Controlled Substance. As a result, you cannot deduct any ordinary and necessary business expenses on your federal tax returns. Massachusetts follows the IRS rules on business deductions; therefore, you cannot deduct your cannabis business expenses from your Massachusetts state tax obligations.

However, you may be able to deduct the expenses directly incurred from the sale of marijuana, which is referred to by the IRS regulations as the “cost of goods sold.” Determining what expenses constitute the cost of goods sold can be fairly complicated, but a knowledgeable Boston cannabis tax attorney can help ensure that you are appropriately claiming any relevant deductions.

Understand the Potential Consequences

Penalties and interest will be applied to any late filings as provided for by Massachusetts law. You may be held personally liable for failing to pay taxes, and if the state believes that it was done intentionally, they could file tax evasion charges against you. Tax evasion is a felony in Massachusetts, punishable by up to five years in prison and hundreds of thousands of dollars in fines.

Contact a Boston Cannabis Tax Attorney Today

If you are starting a cannabis business, an experienced Boston cannabis tax lawyer can help you successfully navigate Massachusetts' tax laws. Contact Kevin E. Thorn, Managing Partner at Thorn Law Group, at 617-692-2989 or email ket@thornlawgroup.com to learn more about how we can help you.