Canna Law Blog
by

January 12, 2015 marks the beginning of the 2015 Washington legislative session and a few cannabis related bills have already been introduced, including Senate Bill 5052, the Cannabis Patient Protection Act. On the tax front, State Senators Hatfield and Rivers have introduced Senate Bill 5003, which could change the landscape for implementing the current Marijuana Excise Tax (MET).

It is now old news that Washington imposes a 25% MET on Washington producers, processors, and retailers. That is, a 25% tax is assessed at each stage of the supply-chain.  Washington’s three-tier excise tax places a significant burden on operating in the I-502 economy. To make matters worse, it is widely viewed that the MET is not deductible for federal income tax under IRS Code 280E. Thankfully, SB 5003 is an attempt to address the shortcomings of Washington’s current marijuana tax structure and will hopefully alleviate the resulting financial stress in the marketplace.

Overall, SB 5003 proposes the following:

  • Increase the MET rate from 25% to 26%
  • The MET is paid by the buyer to the seller
  • The MET is deemed to be held in trust by the seller until paid by the seller to the Liquor Control Board
  • If the seller fails to collect the tax, or collects the tax but does not remit it to the Board, the seller is personally liable for the amount of tax; and
  • The MET must be separately stated from the selling price on any invoice or bill of sale.

Marijuana producers will be the clear winners under SB 5003 as it provides for them to escape the MET. So long as the producer collects and remits the MET from a buyer (e.g., the cannabis processor), the producer no longer has a tax cost or expense but instead has a trust-fund liability. Because the tax burden is shifted to the buyer, producers no longer need worry about how the MET is treated for federal income tax purposes.

SB 5003 also defines a number of key terms. For example, the terms “selling price” and “retail sales” are the same as for sales tax in Washington. In any event, the selling price must represent the true value of the product, as measured either by market value or the sum of all direct and indirect costs. Finally, SB 5003 creates a detailed structure for imposing personal liability for any unpaid MET on officers, chief executives, and other responsible parties if a business entity “has been terminated, dissolved, abandoned, or is insolvent.”

SB 5003 addresses head-on the economic onus that the current MET imposes on the I-502 economy. This session, I fully expect other bills to be introduced that directly or indirectly impact Washington’s taxation of cannabis, but SB 5003 is the clear leader at this point for a much needed fix to marijuana taxes in Washington.

* This is a guest post by tax lawyer, James Hunt.

2 responses to “Cannabis Tax Legislation for Washington State”

  1. Jay is correct … what is the rationale for a 4% increase in the tax? Are we trying to help the black market even more????

    Jim Hunt says this is a big win for producers? The rate the producers charge is set by the market. The current $8/gram rate charged by a producer, inclusive of excise tax, is no different than $6.40/gram plus 25% excise tax of $1.60. The customer pays $8 per gram both ways. It’s a win with respect to now excluding the excise tax from the federal tax definition of gross income.

    And that’s a win for retailers, processors and producers.

    Thanks for reading.

    George
    Shoreline, WA

Leave a Reply

Your email address will not be published. Required fields are marked *

Search

 
 

About this Blog

The Canna Law Blog™ is a forum for discussion about the practical aspects of cannabis law and how it impacts those involved in this growing industry. We will provide insight into how canna businesspeople can use the law to their advantage…

Read More

 
 

Stay Connected

   

 

SUBSCRIBE BY EMAIL

 
 

Topics

Archives

 
 
 
 

Disclaimer

Please be mindful that possessing, using, distributing and selling marijuana are all federal crimes and that this blog is not intended to give you any legal advice, much less lead you to believe that marijuana is legal under federal law.